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EM Flows Tracker Summary - 02 September 2015

Core Content

The document provides an overview of emerging market (EM) capital flows for the week ending 26 August 2015, highlighting significant outflows in both equity and bond markets across various regions, including Asia, CEEMEA, and Latin America (Latam). It also includes foreign ownership data and FX reserve information for key EM countries, along with notes on data sources and legal disclaimers.

Main Points

EM Capital Flows

• Largest weekly EM bond outflows since the 2013 taper tantrum: USD 4.2bn, driven by hard currency (USD 1.9bn) and local currency funds (USD 1.6bn).
• EM equity outflows increased to USD 10.3bn, the largest since January 2008.
• Asia saw portfolio outflows increase for the third consecutive week, led by equity.
  • India and Korea had equity outflows of over USD 1.9bn, more than two standard deviations from their averages.
  • Thailand experienced increased foreign selling in bonds.
  • India saw bond flows turn negative, while Korea had moderated inflows.
• Latam had the second worst week of outflows in EPFR tracking history, with bond and equity redemptions totaling USD 1,391mn and USD 954mn, respectively.
• Brazil led the outflows in Latam, with equity and bond redemptions of USD 610mn and USD 344mn, respectively. Mexico and Colombia also saw significant outflows.
• Non-ETF institutional investors in Brazil and Mexico had outflows of USD 198mn and USD 177mn, respectively.

Foreign Ownership in Bonds

• Asia:
  • KRW: Foreign holdings at 92.9bn, or 24.8% of FX reserves.
  • INR: 57.6bn, or 17.5% of FX reserves.
  • THB: 18.0bn, or 11.8% of FX reserves.
  • IDR: 39.9bn, or 36.9% of FX reserves.
  • MYR: 47.8bn, or 47.1% of FX reserves.
  • PHP: 6.6bn, or 8.1% of FX reserves.
• CEEMEA:
  • Turkey: Foreign bond holdings at 51.8bn, with outflows continuing for five months.
  • South Africa: First month of outflows since May 2015.
  • Hungary: Foreign bond holdings at 19.0bn, with outflows.
• Latam:
  • Brazil: Foreign bond holdings at 150.1bn, or 40.5% of international reserves.
  • Mexico: Foreign bond holdings at 128.2bn, or 36.4% of total domestic debt.
  • Colombia: Foreign bond holdings at 16.1% of total domestic debt, or 24.5% of international reserves.

FX Reserves

• Asia:
  • FX reserves have been adjusting for valuation effects, with outflows in some countries.
• CEEMEA:
  • FX reserves are declining, with increased volatility and market expectations of further outflows.
• Latam:
  • Brazil and Mexico have high foreign ownership in domestic debt, with Mexico having the highest percentage at 68.5% of international reserves.
  • Latam has lost USD 9,450mn in the last three months.

Key Information

• Outflows are driven by adverse liquidity conditions, rising real rates, and market expectations.
• Non-ETF institutional investors are significant contributors to the outflows.
• Carry trades are under pressure due to tight spreads and negative returns on locally-denominated debt.
• Data Sources:
  • Equity flows: EPFR, BNP Paribas, and local stock exchanges.
  • Bond flows: BNP Paribas, CEIC, local bond associations, and central banks.
  • FX reserves: BNP Paribas, IMF, central banks, and local financial institutions.

Legal and Disclaimer Notes

• This document is a marketing communication and not independent investment research.
• It is not intended to be an exhaustive analysis and may be subject to conflicts of interest.
• No liability is accepted for any direct or consequential loss arising from reliance on the document.
• The information and opinions are based on public sources and are not guaranteed to be accurate or up to date.
• Legal restrictions apply depending on the region, with the report intended for professional clients only in the European Economic Area.

Summary

The report outlines a significant decline in EM capital flows, with bond and equity outflows reaching historical levels. Asia, CEEMEA, and Latam all experienced negative inflows, driven by adverse market conditions, tight spreads, and rising real rates. Foreign ownership in bonds is high in Mexico and Brazil, but outflows continue to pressure FX reserves and currency stability. The data sources are varied, and disclaimers are provided to clarify the non-investment research nature and legal restrictions of the report.