Capital flows to Emerging Markets drying up

IIF Data released yesterday shows that 2015 is set to be the first year since 1988 in which EM experienced net capital outflows. In truth, this is the culmination of a long standing trend which began in 2011, but the speed of the decline this year is alarming. 

In particular capital outflows from China in the wake of the August CNY devaluation are a highlight, but what we're seeing is that investors are pulling their money from EM en masse. There are good reasons for this. Lower growth, declining terms of trade and a heavily indebted private sector will constrain investment returns over the medium term. 

"Given that the Fed will tighten monetary policy in the imminent future rather than loosen policy as in 2008/9, this implies that investors are right not to expect any meaningful reversion in asset prices, despite severe nominal declines in EM equities, bonds and exchange rates. However, it is way too early to talk about going bottom fishing in EM and these data effectively confirm as much", argues Commerzbank.