Foreigners pour $31 bln into EM portfolios in August, with Fed in sight -IIF

Overseas investors poured $31 billion into emerging market (EM) portfolio in August, the highest monthly inflow since June 2021

According to the Institute of International Finance (IIF), the inflows were driven by a combination of factors, including a perception that EMs offer better value and growth prospects than developed markets and expectations of a less aggressive policy tightening by the US Federal Reserve. The inflows were also supported by a recovery in commodity prices and a weaker US dollar.

Asian EM portfolios attracted the bulk of inflows, with China receiving the largest share

Within EMs, Asian markets attracted the bulk of the inflows, with China accounting for the largest share. This was driven by expectations of policy easing in China and a recovery in the Chinese economy. Other Asian markets that saw significant inflows include India, Indonesia, and Thailand. The strongest inflows were seen in bonds, followed by equities and other investments.

EM inflows expected to continue in the coming months, but may be more volatile

IIF expects EM inflows to continue in the coming months, but at a more moderate pace. The pace of inflows will depend on a number of factors, including the path of the Fed's policy tightening, the global economic outlook, and the performance of EM assets. EM inflows may also become more volatile as investor sentiment shifts.

Foreign investors remain cautious about EM assets amid concerns about global growth and inflation

Despite the recent inflows, foreign investors remain cautious about EM assets. This is due to a number of concerns, including the potential for a global recession, rising inflation, and the impact of the war in Ukraine. As such, investors are likely to be selective in their EM investments and may focus on countries with strong fundamentals and attractive valuations.