Neutral flows in May
Our nowcasting model shows investor flows to Local Currency EMD, excluding China, were neutral in May (+0.34 bio USD).
Investor behaviour in EMD has been driven by global macro and idiosyncratic country factors. Concerns about US inflation and monetary policy, resurging COVID outbreaks and the narrowing EM-DM growth differential remain paramount. We believe that EM should benefit from a post-COVID growth boost as surplus savings at the consumer level are spent.
Last month saw upside inflation surprises in the US, but treasury markets seemed less sensitive to the data. Market participants increasingly appear to agree with the Fed’s assertion, that such shocks are transitory.
Turkey, whose market drove a large part of the outflows seen in March, saw further central bank and political events that unnerved investors. Inflation remains high but we may be at the peak. Should Governor Agbal use this assumed peak as a chance to cut rates the investment flows may see further capitulation. South African assets continued to perform well, supported by stronger economic activity and an improving fiscal outlook. In Hungary, it was announced that monetary policy would enter a new phase, and a rate hike would probably take place this month.
In Brazil, the lower house of Congress approved a bill to allow the privatisation of Electrobras, and tax reform is also being discussed, albeit in a narrower form. In Chile, political surprises have shown a move to the left in regional and constitutional elections. This month, investors will keep a close eye on the Peruvian presidential elections, and the possibility of a hard-left populist victory. Such a result would likely result in further outflows.
Trounceflow Nowcaster’s estimates the aggregate monthly cross-border flows across emerging markets: equity and debt. Precision, optimisation, and speed are the core criteria for Trounceflow’s nowcaster. We can predict what the data will likely be before official country specific flows are published and in doing so hope to provide you with an added edge.
Flows Heatmap: Our heatmap displays the latest aggregated and country-specific flows. We show the intensity of positive and negative flows based on historical data since 2015. Dark Green = inflow, Dark Red = outflow.
Percentile Heatmap: The second heatmap shows the relative position of a monthly flow related to historical flows since 2015 (more specifically, the percentile values for flows). A value of 100% denotes a flow which is higher than any other historical flows, while a 0% implies a flow lower than any other observed flow.
Authors: Paul Blower, Ian Zelaya