Inflows of foreign investor money into emerging economies shrivelled to $2.2 billion in August as portfolio managers rattled by rising trade tensions and a strong dollar pulled out of developing debt markets, the IIF said in a report on Tuesday.
Data from the Institute of International Finance, which tracks financial flows, showed emerging equities accounted for all inflows, raking in $7.1 billion, while debt markets suffered $4.8 billion of outflows, their first such loss since June.
In July, emerging markets overall saw portfolio inflows of $13.7 billion.
"August continued the trend of volatility in 2018 with a sizeable rout caused by spillovers from turmoil in Turkey sandwiched between relatively strong inflows to begin and end the month," IIF deputy director Emre Tiftik wrote in the report.
"Idiosyncratic events in a number of countries, coupled with trade war tension and less accommodative monetary policy stances by the G-3 central banks continue to cause many headwinds for EMs," he added. Turkey's escalating currency crisis and the turmoil in Argentina have rattled other developing markets in recent weeks.
Within equities, the trend of inflows into Chinese stocks and outflows from emerging stocks elsewhere continued. This was also thanks to a structural rotation, with fund managers allocating more capital to stocks in the world's second-largest economy as part of their inclusion by index provider MSCI.
Chinese stocks made up for $5.8 billion of inflows or 82 percent of all equity inflows in August. Year-to-date net flows to China are above $92 billion, marking a striking improvement from outflows of more than $53 billion during the same period in 2017, IIF found.
Meanwhile rising US interest rates and weaker emerging currencies have upped the pressure on emerging debt markets, which have seen the weakest four-month stretch since the end of 2015 when China devalued its currency.
"One side-effect of this reduced appetite has been a slowdown in FX-denominated bond issuance: June and August have been the two weakest months of issuance since the 2015 turmoil with about $7 billion issued in each month compared to a monthly average of $27 billion over the past two years," Tiftik wrote.
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