Foreigners pour $31 billion into EM portfolios in August, with Fed in sight -IIF

By Rodrigo Campos

(Reuters) – Foreign investors ploughed a net $30.9 billion into emerging market stocks and debt portfolios in August as markets continue to position for an imminent rate cut from the U.S. Federal Reserve, data from a banking trade group showed on Monday.

Fixed income funds ex-China accounted for $27.8 billion of inflows, with $1.4 billion funneled to Chinese debt, the data show. The net inflow to stocks stood at $1.7 billion despite a $1.5 billion outflow from Chinese equities.

“The expectation of Fed cuts in the near future seems to be priced in and investors are positioning themselves into EM debt in large quantities,” said in a statement IIF economist Jonathan Fortun.

The monthly net total of $30.9 billion compares with $37.4 billion in July and a $21 billion outflow in August 2023.

A Fed rate cut is fully priced in by the end of this week’s policy-setting meeting, with bets for a quarter-point cut or a half point increasingly tilting towards the bigger reduction, according to the CME’s FedWatch Tool.

A week ago, the chance for a 50 basis points cut was at just 30%. The Fed meeting ends Wednesday.

“Moving forward we see Fed cuts aiding to the level of capital flows across the EM complex,” Fortun added.

“The potential for a wider rate differential between EMs and developed markets could draw more capital to EM assets, especially in countries with stable economic fundamentals and positive growth prospects,” he said.

Regionally, last month Asia saw a net $17 billion inflow, followed by $9.4 billion to Latin America, $2.6 billion to Africa and the Middle East, and $1.9 billion to Emerging Europe.

Year-to-date, foreigners have poured some $186.5 billion net into their emerging market portfolios, with net $162.5 billion going to debt.