December portfolio outflows cap the weakest year since the crisis in the Emerging Markets (EMs). Non-resident portfolio outflows from emerging markets are estimated to have been $3.4bn in December, mainly on the debt side, a report issued by the Institute of International Finance (IIF) showed.
December’s dismal reading cuts total net non-resident EM portfolio inflows for 2016 to just $28bn- weakest year since 2008 and 90 percent below the 2010-14 average. Overall, EM equities did better in 2016, with $61.4bn in net portfolio inflows; EM debt saw net portfolio outflows of $33.8bn for the year.
No single factor stands out as the cause of the retrenchment in portfolio flows to emerging markets. Rising US yields—partly as a result of the reflationary “Trump trade” but also attributable to a more hawkish Fed—have been the main contributor to the weakness. However, idiosyncratic events in a number of EM countries, including Turkey and India, have weighed on domestic prospects, exacerbating portfolio outflows. Moreover, concerns about the path of the RMB and the potential impact of the incoming Trump administration’s policy agenda have heightened concerns about the environment for global trade—a key consideration for many emerging markets.
Net capital outflows from China intensified in November to an estimated $96bn (vs. $70bn in October). This brings net capital outflows from China to some $635bn through November—10 percent higher than the same period in 2015. Available data on onshore RMB trading volumes and on offshore CNYUSD forwards suggest that net capital outflows remained substantial in December.
