Emerging markets hit by worst outflows since Trump election: IIF

LONDON (Reuters): Investors have pulled $13.8 billion from emerging markets so far in August, the most since Donald Trump’s US Presidential election win in November 2016, Institute of International Finance data showed on Thursday.

“The resurgence of the trade conflict, combined with increased fears of a global slowdown, have been catalysts for the ongoing EM [emerging markets] portfolio reversal,” IIF said.

The August exodus saw investors haul just over $14 billion from EM stocks, and though bonds saw a modest $300 million inflow of money, there were still large outflows in some countries.

Somewhat surprisingly, China equities saw a $1.5 billion gain the IIF added. But the growing fears of a global recession and a lengthy trade conflict saw $15.6 billion yanked out, excluding China.

It has been a taxing month for emerging market investors as concerns the global economy might tip into recession and an escalating trade spat between the United States and China soured sentiment.

A slide in the Chinese yuan to an 11-year low against the dollar and Argentina’s debt crisis have also buffeted emerging markets.

“For China, depreciation pressure on the RMB [yuan] carries the risk of a pickup in capital outflows,” IIF said in a separate note on Thursday.

“For the rest of EM, RMB weakening carries contagion risk and adds to an already unsettled environment, with evidence of mounting spillovers from the sharp depreciation in Argentina’s peso.”

IIF said the peso’s depreciation was already spilling over to Brazil and Turkey, which had both suffered from FX sell-offs.