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By Dion Rabouin
Jan 3 Emerging market portfolios recorded their
lowest total inflows since 2008 as investors responded to global
shocks last year by buying fewer developing country assets, a
report showed on Tuesday.
Nonresident investors cut inflows to emerging market assets
to $28 billion in 2016, with debt portfolios recording
substantial outflows, the Institute for International Finance
In December, portfolio outflows totaled $3.4 billion,
predominately in debt, to give 2016 the weakest inflows for
emerging markets since the global financial crisis. The $28
billion of inflows for the year was also 90 percent below the
average from 2010 to 2014, IIF said.
Emerging markets have been particularly hard hit since the
election in November of Donald Trump as U.S. president.
"No single factor stands out as the cause of the
retrenchment in portfolio flows to emerging markets," IIF said
in a statement. "Rising U.S. yields - partly as a result of the
reflationary 'Trump trade' but also attributable to a more
hawkish Fed - have been the main contributor to the weakness.
However, idiosyncratic events in a number of EM countries,
including Turkey and India, have weighed on domestic prospects,
exacerbating portfolio outflows."
IIF reported earlier this year that Trump's victory had
triggered a substantial reversal in fund flows, sparking the
longest continuous "reversal alert" since the organization began
issuing the report in 2005.
Win Thin, Brown Brothers Harriman's global head of emerging
market currency strategy, noted uncertainty over terrorism and
an attempted coup in Turkey, political instability in South
Africa, nuclear threats from North Korea, and austerity and
political risks in Brazil were also causes for concern.
"There's a lot of country specific risk and that's on top of
a negative macro backdrop," Thin said. "That's why I'm pretty
negative on EM for the first half of this year."
Emerging market debt portfolios had $33.8 billion of
outflows, while equity funds drew in $61.4 billion.
Net capital flows from China were the primary driver of
outflows with an estimated $96 billion during the year, rising
from $70 billion in October.
Turkey had the largest net capital inflows, at $37 billion,
followed by India at $33 billion and Mexico at $30 billion.
However, year-to-date net capital inflows to Brazil and India
were almost less than half their 2015 levels.
The IIF tracks portfolio flows to eight countries -
Indonesia, India, Korea, Thailand, the Philippines, South
Africa, Brazil and Hungary.
(Editing by Dan Grebler and Jeffrey Benkoe)