EM stocks see largest foreign monthly outflow since 2020, bonds hang on

By Rodrigo Campos

(Reuters) -Foreign investors sold out of emerging market stocks in October by the most since the COVID-19 market sell-off in early 2020, but inflows to EM bonds and debt more than offset the outflow, data from a banking trade group showed on Friday.

The October monthly net total inflow of $1.9 billion compares with a $56.4 billion inflow in September and an $8.1 billion outflow in October 2023, data from the Institute of International Finance showed.

Stock portfolios saw a $25.5 billion outflow, the largest since March 2020, while bonds attracted $27.4 billion.

Chinese equities alone shed $9 billion after having posted in September the largest inflow since at least 2015, while China bonds pulled in $1.4 billion. A renewed stimulus push from the government in late September failed to impress and a fresh November stimulus announcement also fell short of expectations.

“Despite targeted easing measures by the Chinese government, investor confidence remains low,” IIF economist Jonathan Fortun said in a statement.

“These dynamics have driven substantial market shifts, where growth concerns and regulatory uncertainty continue to deter foreign investment in China.”

As markets were setting up for the U.S. presidential election in early November, late October saw a move toward trades that would benefit if Donald Trump returned to the White House – driving up the dollar and U.S. rates.

“Concerns over the dollar’s strength relative to EM currencies have amplified risk aversion in equity markets,” Fortun said.

“This shift aligns with the expectation that yield differentials and rate trajectories may increasingly favor EM debt over equities as risk aversion rises globally.”

Regionally, last month Asia saw a net $6.8 billion outflow, while Emerging Europe received $5.2 billion and Latam $3.6 billion. Flows to Africa were marginally negative.

Year-to-date, foreigners have poured about $249 billion net into their emerging market portfolios. Some $220 billion has gone to debt, $169 billion of which went outside of China.