LONDON (July 10): A sharp retreat from tech-heavy equities in South Korea and Taiwan fuelled net emerging market stock outflows of US$46.1 billion (RM187.4 billion) from foreign investor portfolios in June, banking trade group data showed, contributing to a second straight month of overall portfolio losses for developing economies.
The monthly report from the Institute of International Finance said on Friday foreign investors pulled US$30.5 billion from South Korean stocks — the biggest outflows in more than 25 years — while Taiwan equities bled US$18.3 billion.
However, the report showed a sharp split between equity and debt flows, with bonds pulling in US$28.3 billion last month even as overall portfolio flows swung to a net loss of US$17.8 billion.
“Investors are still willing to lend to EM,” IIF chief economist Jonathan Fortun wrote in the report. “They are less willing to add broad equity risk.”
Still, the report warned that a more hawkish US Federal Reserve, under new chairman Kevin Warsh, and renewed oil volatility, could tighten dollar liquidity and raise the hurdle for emerging market risk.
Fortun also said that higher global discount rates, China uncertainty, weaker earnings confidence and sensitivity to tech and energy positioning led investors to cut equity allocations.
The data also showed sharp regional divides; emerging Asia recorded US$27 billion in total portfolio outflows in June, while Latin America, emerging Europe and the Middle East and North Africa flows were all positive.
China equity outflows also accounted for US$14 billion of the total, a significant swing from May’s US$8.1 billion inflow, while foreign investors also notched US$3.7 billion outflow from China’s debt.
“The first half message is clear,” Fortun wrote. “EM has still attracted capital in aggregate, but only because debt inflows have more than offset persistent equity liquidation.”
First-half sovereign issuance hit roughly US$170 billion, the strongest first half in recent years, and net issuance was above US$100 billion for the year.
June included international bond deals from Mexico and China, Latvia and Bahrain, “confirming that market access remained available across regions.”
Uploaded by Magessan Varatharaja
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