India also turned negative this week as debt flows reversed. Photo: Hemant Mishra/Mint
London: Investors rattled by events in Turkey, China and South Africa have pulled $1.3 billion out of emerging market stocks in the last week and $100 million from bonds, according to the Institute of International Finance, which tracks financial flows. An emerging-market sell-off has picked up pace over the last week as concerns about Turkey and others have compounded longer-term worries about a global trade war, a strong dollar and rising borrowing and energy costs.
The Washington-based IIF said the exodus of investment money this week has largely been concentrated in South Africa and China, amounting to $600 million and $500 billion, respectively.
However, India has also turned negative this week as debt flows reversed, and Malaysia, Indonesia, Korea, Philippines, Korea and Vietnam have all seen money leave, albeit at moderate pace.
“Turbulence, amid heightened tensions between the US and Turkey, has clearly weighed on investor appetitive for emerging market assets,” the IIF said in a new report. South Africa’s reliance on portfolio debt and equity flows to finance its large and widening current account deficit has amplified its moves, it added.
Nearly 80% of foreign investor flows to South Africa since 2015 have been in the form of portfolio investment, buying assets such as bonds or shares. Direct investment, such as building a factory, accounted for less than 10% of total inflows.
“The impact of market strains is likely to be most acute for countries with relatively large external financing needs,” the IIF said.
Thailand, Qatar and Brazil were the only countries in its sample group that saw money come into their asset markets over the last week, while the wider sell-off had not been as severe as when US-China trade tensions first erupted, it added.