LONDON, July 3 (Reuters) - Outflows of foreign investor money from emerging economies accelerated in June as markets were buffetted by trade tensions, higher borrowing costs and other headwinds, according to data from Institute of International Finance (IIF).
Non-resident portfolio outflows from emerging markets rose to $8 billion following an exodus of $6.3 billion in May, the IIF said in its monthly capital flows tracker. Outflows were split about evenly between debt markets, which recorded a net loss of $4.2 billion, and equity markets at $3.8 billion.
“Unlike other recent bouts of EM outflows, this recent downturn has featured outflows from China – likely prompted by escalating U.S.-China trade disputes and the sharp renminbi depreciation,” IIF analysts wrote in their report, adding the June data had capped off the weakest quarter for emerging market flows since the end of 2016.
“Trade tensions, coupled with diverging economic outlooks, have also prompted a marked upturn in portfolio allocations to U.S. assets - at the expense of other developed markets as well as EMs.”
Emerging markets had a torrid June, suffering a broad selloff after the U.S. Federal Reserve hiked rates and gave a more hawkish outlook than expected in June, as the dollar continued a relentless ascent and trade tensions between Washington and Beijing escalated.
Most major emerging market regions were suffering outflows, the IIF found, with $4 billion leaving Africa and the Middle East, $2.7 billion from emerging Asian economies while $2.5 billion left Latin America.
“That said, given the prolonged weakness in EM flows, it would not be surprising to see a relief rally and some tactical rebalancing if the trade narrative improves and/or the U.S. dollar heads lower,” the IIF report said.
Reporting by Karin Strohecker; editing by John Stonestreet