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This Is Why Chinese equities Received $9.1b In Inflows

This Is Why Chinese equities Received $9.1b In Inflows

The International Institute of Finance says its high frequency data registered important outflows from EM x/China equities ($19.6 bn).

Opposite to this trend however, our tracker showed inflows for China equities ($9.1 bn). Meanwhile EM x/China debt showed inflows for $9.1 bn, aided mainly by resilient interest in corporate bonds. China debt showed $2.5 bn of outflows.

“We are in a global interest rate and high inflation shock. Longer-dated government bond yields have risen sharply across advanced economies, tightening financial conditions, weighing on growth, and pushing up risk aversion.

“This mechanism is weighing on flows to emerging markets. We see that the current outflow episode is similar in scale to the RMB devaluation scare in 2015 and 2016,” it says in its latest Emerging Market report.

Chinese economy in focus

For the coming months, several factors will influence flows dynamics, among these the timing of inflation peaking and the outlook for the Chinese economy will be in focus.

“Despite the recent readings, we remain constructive, as most of the big emerging markets started hiking well ahead of advanced economies, which now leaves real longer-term interest rates across many EMs well above their G10 counterparts,” it says.

That provides some protection from the current global interest rate shock. That said, there are obviously pockets of weakness in EM – where real interest rates are deeply negative – and risks for these countries are rapidly mounting.

Regionally, the data shows gains only in Latin America (inflows of $5.7 bn), with other regions showing outflows.

“We estimate that EM securities suffered an outflow of $4.0 bn in June 2022, making this the fourth consecutive month of outflows (Exhibit 1).

Mounting global recession risk is weighing on EM flows as anxiety builds over geopolitical events, tighter monetary conditions and realized inflation. The continued volatility in equity markets has hurt the outlook considerably.

Please find all data available for download on the IIF website.