NN IP: Emerging markets investors rush for the exit
Maarten-Jan Bakkum, senior emerging markets strategist, Multi Asset at NN Investment Partners comments on the impact of the ongoing capital outflow in emerging market economies.
The capital outflow from the emerging world continues to get worse. Of all emerging economies that have reported their foreign exchange reserves for July, only India and Taiwan recorded an increase over the month.
The rest lost reserves, which indicates that more central banks are intervening to stop or slow currency depreciation.
The total capital outflow from EM for the second quarter was USD 120 billion. The third quarter has started even worse: July alone is likely to show an outflow of USD 80 billion.
For the second week in a row, our own EM economic growth momentum indicator, which captures the 3-month change in the eight most relevant cyclical indicators for the 19 main emerging economies, deteriorated sharply.
The decline was the most pronounced in Malaysia and Colombia. The only country with an improvement in growth momentum was India.
With capital flows remaining negative and with Chinese growth not showing convincing signs of bottoming out, the pressure on EM growth is likely to remain. And with policy makers still not coming through with significant reforms to reduce macro imbalances and improve the investment climate, EM currencies are likely to continue depreciating.
The deepening political crises in Brazil, Malaysia and Turkey have reduced the likelihood of structural change anytime soon in these countries.