Portfolio flows to emerging markets slow to $7.7 in July

By Tuba Sahin

ANKARA (AA) – Emerging markets attracted $7.7 billion in portfolio flows in July, according to the Institute of International Finance (IIF).

The global financial institution said late Tuesday that emerging markets remain vulnerable to uncertainty around COVID-19 and tapering by the Federal Reserve.

Last week Fed kept its benchmark interest rate unchanged between the 0.00% - 0.25% range and affirmed American economy has improved but it is short of full recovery.

Flows into emerging market equity have diverged sharply with investors retracting their positions due to renewed uncertainty caused by the pandemic, according to the IIF.

"Nevertheless, flows in EM hard-currency debt have recovered to pre-pandemic levels, and demand for new issuance remains strong."

The buildup of inflationary pressures across the market has hurt the outlook, the institution said, adding persistent fiscal deficits have increased the debt burden across the emerging market complex, rising fiscal vulnerability.

Dynamics of emerging market flows in July were mainly backed by debt flows with $18.2, suggesting that many emerging markets rushed to the market to place debt before the expected increase in rates.

Equity flows registered net outflows of $11.4 billion except China, as its equity showed only marginal inflows ($0.9 billion).