Emerging markets posted a sudden surge in inflows during the weekend despite the increasing trade tensions between the US and China, according to the Institute of International Finance.

However, despite the slight recovery, the outlook for capital flows to emerging markets remains challenging and dependent on how the trade conflict plays out, the IIF said in a new report.

“With an outflow for equities of US14.6 billion, May is poised to be the worst month for emerging market stocks since the June 2013 ‘taper tantrum’, the IFF has estimated.

At this time, almost US$22 billion was pulled out of emerging market stocks after the US Federal Reserve announced plans to reduce the amount of money it was feeding into the economy.

“The trade war between the US and China “impacted equity flows heavily,” the IIF said.

The Washington think-tank noted the the reading for ex-China equity flows was -US$7.4 billion, while China equity flows were -US$7.2 billion, underlining generalised outflows for equities across all emerging market economies.

However, the Institute, which tracks global capital flows, drew a clear distinction between debt and equity flows; while US$14.6 billion was pulled out of equities, US$9 billion flowed into emerging market bonds.

That said, the figure is lower than the US$24.2 billion that flowed in during April, it added.

Emerging market equities outside Asia – that also saw large outflows in May-namely Brazil and South Africa – did not see a similar recovery in early June.

the IIF has 450 members from 70 countries. It’s members include asset managers, sovereign wealth funds, hedge funds, and central banks.

Elizabeth Fry is the editor of Investment Magazine's digital platform. Fry has been a financial journalist for more than 25 years and has written for a number of publications, including CFO, The Financial Times and The Australian Financial Review.
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