By Rodrigo Campos
NEW YORK (Reuters) – Foreign investors added $273.5 billion to their emerging market equity and debt portfolios last year, nearly $100 billion more than in 2023, according to a bank trade group’s preliminary data published on Friday.
The $273.5 billion of inflows for 2024 topped the $177.4 billion in 2023 though it was below the $375 billion average between 2019-2021, according to the report from the Institute of International Finance.
Almost all the inflow was money put into fixed income last year with $219 billion added to debt outside China and $54.2 billion to Chinese debt. The picture was more split in stocks, where Chinese equities raked in $11.3 billion while those elsewhere in the developing economies world lost $11 billion, the data show.
U.S. growth and the strength of the dollar were headwinds to investing in emerging markets most of the year, and the Federal Reserve itself has downgraded its expectations for rate cuts in 2025 – which in turn provides yet more support to the dollar.
Signs of a looser monetary policy in the U.S. would be supportive of EM assets in general.
“Throughout 2024, the strong dollar and elevated U.S. yields created significant headwinds for EM equities and certain debt markets, a trend that may reverse if the Fed begins signaling rate cuts in the coming months,” said IIF economist Jonathan Fortun in a statement.
“While Fed dovishness would provide a much-needed tailwind, sustained recovery in EM equities will likely require further clarity on global growth prospects and targeted policy measures in key markets like China,” he said.
JPMorgan warned on Thursday of a sudden stop of flows to emerging markets as a strong U.S. economy keeps investors away from developing nations seen as riskier.
Yet idiosyncrasies will continue to dictate flows, as seen by equity inflows in December to India, Brazil, Saudi Arabia and Taiwan.
The breakdown of IIF data by month showed non-residents added a net $14.4 billion to emerging market portfolios in December, with stocks posting net overall outflows.
Regionally, Latin America led inflows with $6.6 billion followed by Emerging Asia with $5.3 billion, while Africa and the Middle East, and Emerging Europe pulled in $1.7 billion and $1.1 billion respectively.
