Emerging markets see influxes despite caution towards China

(MENAFN) The Institute of International Finance reported on Wednesday that emerging market stocks and bonds experienced net inflows totaling USD35.7 billion in January, driven by increased debt sales, despite investor wariness towards China. Notably, non-resident acquisitions of emerging market debt reached USD42.7 billion last month, marking the largest cash outflow since June 2021, while stock outflows amounted to USD6.9 billion. These trends were consistent across all geographic regions.

China's economic challenges persisted, with the country experiencing a recession as evidenced by equity outflows of USD3.2 billion in January and continued debt outflows totaling USD4.7 billion, extending a streak of seven consecutive months. This struggle to regain investor confidence underscores the difficulties faced by the world's second-largest economy in stabilizing its markets.

The Institute of International Finance attributed the influx of bond flows in January to a surge in supply, with emerging markets collectively selling a record-high USD47 billion worth of bonds during the month. Looking ahead, Morgan Stanley anticipates sovereign debt issuances by emerging markets to reach approximately USD165 billion this year, representing a notable increase of around 20 percent compared to 2023.

Meanwhile, recent remarks by US Federal Reserve Chairman Jerome Powell indicate a potential shift in the central bank's stance. Powell suggested in a recent interview that the Fed may adopt a more cautious approach, signaling a potential slowdown in its previous trajectory. This follows earlier statements indicating that interest rates had peaked and were poised to decrease in the coming months, as discussed during the January 31 meeting.


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