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December 1, 2016 | 10:45 | Dubai
Portfolio outflows largest since “taper tantrum”: Non-resident portfolio outflows from EMs are estimated to have been a hefty $24.2 billion in November, with EM equities and debt seeing outflows of $8.1 billion and $16.1 billion, respectively. There have only been four months with bigger outflows since 2005: three occurred in the heart of the global financial crisis and one immediately following the 2013 “taper tantrum”.
The election inflection point: Although the countries in our sample of daily flows saw modest outflows of nearly $5 billion in the month leading up to the election, the surprise Trump victory on November 8 triggered a round of intense selling only rivaled by past major reversal episodes, with outflows of nearly $14 billion since election day.
Net capital outflows from China eased in October: October saw a slight moderation in net outflows from China to around $62 billion from around $90 billion in September. However, October’s outflows were still larger than the average monthly outflow of $52 billion seen since the beginning of 2016. A significant share of the outflows continued to be RMB-based in October, with year-to-date RMB-based outflows amounting to some $275 billion—compared to $530 billion of year-to-date net capital outflows.
Other emerging markets (ex-China) saw net capital inflows in October: Net inflows to other EMs were robust at $24 billion in October—the best month since June, bringing year-to-date capital inflows to around $175 billion—65% above those in the same period of 2015. Russia was the only country recording net capital outflows in October (around $0.7 billion), while flows to Turkey recovered strongly to around $6.6 billion in October. Flows to Brazil, Mexico, Poland, and South Africa accelerated too, but net capital flows to India slowed to around $2.7 billion in October from more $7 billion in September.
Don’t forget the Fed: The impending December rate hike is weighing on flows to EMs. With Trump’s pro-growth, reflation agenda, markets have sharply repriced expectations for future Fed rate hikes since the election by about 30 basis points by the end of 2017. Domestic factors were also a driver, perhaps including heightened con-cerns about the EM growth outlook given a less-friendly backdrop for global trade and EM exporters.