Total outflows from emerging markets amounted to USD 87 billion in September, which is better than the USD 128 billion recorded in August, but still more than the year-to-date average of USD 78 billion, according to figures from NN Investment Partners (NNIP).
NN IP’s proprietary EM growth momentum indicator showed another small improvement over the last week but with EM capital flows remaining negative, it is difficult to expect that EM currencies can appreciate much or that financial conditions in EM can become much easier, the asset manager says.
Maarten-Jan Bakkum (pictured), Senior Emerging Markets Strategist, says: “The recent rebound of EM assets has been driven by a combination of expectations of later US interest rate hikes and some signs of improving EM growth dynamics. But let’s be clear: EM growth momentum remains in negative territory, but less so than in the summer. As long as capital leaves the emerging world, pressure on EM interest rates will remain. Average EM one-year local bond yields have been above 6 per cent for one-and-a-half year now, and it will be difficult to see them much lower anytime soon.
“One of the key factors driving EM flows and asset prices is the Chinese growth picture. The September trade data confirmed once again that domestic demand growth in China is still slowing. Import growth fell to -20% from -14% in August. Commodity price declines explain much of the import contraction. But import volume growth has remained negative as well. Export growth was a bit better than expected, at -4% year-on-year. Sales growth to the US and Europe improved a bit, while sales to Asia and the rest of the emerging world continued to decline sharply.”
