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Emerging market outflows rocket towards $1 trillion

Emerging market outflows rocket towards $1 trillion

The plunge in sentiment in emerging market has since outflows surge across the region.

According to research from NN Investment Partners cited by the Financial Times, outflows in the 19 largest emerging market economies in the 13 months to the end of July hit $940.2 billion.

To put this into context, this is more than double the $480 million outflow at the height of the financial crisis in 2008/2009.

The data confirms the startling decline in emerging markets, which had seen $2 trillion of capital inflows in the years following the crisis, before the marked decline in sentiment over the last 13 months.

NN Investment Partners senior emerging market strategist Maarten-Jan Bakkum warned the FT: ‘These outflows have much further to go’.  

The situation looks unlikely to improve in the near future after China’s shock devaluation of the yuan, with the world unsure of the People’s Bank of China’s (PBoC) next move.

‘A more substantial devaluation of the yuan, if it emerges against Fitch's expectation, would add to the economic challenges currently being faced by Asia-Pacific more broadly,’ Fitch senior director Andrew Colquhoun said.

‘It could potentially broaden the impact from China's now-expiring real estate boom for those economies that are more exposed to Chinese consumption - including major commodity exporters such as Australia and Indonesia.’  

Others do not think the devaluation will necessarily spark fresh carnage for emerging markets.

‘We do not expect [China’s] recent moves to turn into a rout,’ Capital Economics said.  

‘For a start, if the PBoC is going to allow the market to play a greater role in determining the renminbi’s exchange rate against the dollar, we do not think it will be long until sentiment starts to improve as signs emerge that the economy is stabilising.  

‘The upshot is that once the renminbi sell-off eases, there is room for EM markets to rebound.’

Asset managers with big emerging market franchises like Aberdeen Asset Management will hope this proves to be case.

A trading update from Aberdeen last month showed a further outflow of £9.9 billion from the firm’s fund range in the second quarter as investors took flight from emerging markets.

The decline in sentiment towards its key asset class has seen Aberdeen’s share price slump from a 12-month peak of 509.64p to 336.43p.

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