Emerging market bond rush lifts June investor flows to $42.8 bln, says IIF
Foreign investors pouring into debt markets lifted inflows to emerging market stocks and bonds to a nine-month high of $42.8 billion in June, as developing economies enjoy a 'Goldilocks moment,' a banking trade group said on Tuesday.
June's inflows from non-residents mark a healthy acceleration after a $16.8 billion inflow in May, according to data from the Institute of International Finance, and the largest net monthly inflow since September's $63.5 billion.
"This reflects the rare combination of softer global rates, weaker dollar, and relatively resilient EM macro fundamentals, creating an environment seen as neither too hot nor too cold for capital flows," Jonathan Fortun, senior economist at the IIF, said in a statement.
Inflows to equity portfolios stood at $9.9 billion, the most since September. But it was debt flows that were eye catching at $32.9 billion, after two months of less than $9 billion.
China remained the central driver in bond flows, sucking in $23.8 billion, the IIF calculated, but debt markets outside China also saw a rebound in flows.
Local currency debt remained particularly attractive, supported by the weaker dollar, high carry and credible domestic policy frameworks, the group said, with Mexico's peso, Brazil's real and South Korea's won leading the pack.
Local currency government bonds have reaped returns of some 12% since the start of the year, according to JPMorgan indexes, more than double that of their hard-currency peers.
Meanwhile, the MSCI EM stocks index CBOE:EFS gained 13.7% through June, its best such performance since 2017. Goldman Sachs predicted there were more gains to come, raising its 12-month forward estimate for the index to 1,370 from 1,290.
"We see room for additional upside in the second half given relatively firm EM economic activity (despite tariff uncertainties)," Goldman said, pointing to a continued increase in flows "in a significantly under-owned asset class."
IIF data showed that regionally, Asian portfolios attracted over $21 billion last month, helped by a $6.9 billion inflow to Asian equities, the largest in a year.
Latin America took in $11.3 billion while Europe as well as Africa and the Middle East both enjoyed the largest monthly inflows since January.
Yet markets remain under the threat of volatile trade and tariffs policy out of the United States after President Donald Trump said over the weekend he would impose a 30% tariff on most imports from the EU and Mexico starting August 1, adding to similar warnings to other countries.
"The market continues to underprice the potential fallout from the Trump administration’s trade and tariff agenda," Fortun said. "These measures carry the capacity to disrupt supply chains, amplify inflation, and trigger retaliation, risks that remain underappreciated in current global risk sentiment."
