The recent rally in emerging market assets has slowed somewhat but EM portfolio flows are still in “surge” territory, according to the Institute of International Finance.
One big beneficiary is Brazil, where investors seem convinced that the government of the unpopular Dilma Rousseff is about to fall and be replaced by a team of reformist technocrats, apparently poised to take power.
But Brazil is far from alone. The IIF’s figures — based on a sample of seven EMs that report daily data — suggest that the euphoria is broad-based and applies to commodity and manufacturing-driven EMs alike.
The IIF calls a “surge” or “reversal” in non-resident cross-border portfolio flows to EMs when the seven-day moving average (MA) rises above or falls below a “confidence band” one and a quarter standard deviations either side of the 28-day MA of those flows.
The data come from seven countries: India, Indonesia, Thailand and South Africa (equity and bond flows), Brazil and South Korea (equities only) and Hungary (bonds only). Together, they account for 52 per cent of cross-border EM equity flows and 15 per cent of bond flows, according to the IIF.
The IIF’s latest surge began on March 3. It will remain in place until the two MAs meet again (the seven-day MA re-entered the confidence band March 10).
Flows turned positive on February 26, since which time the seven countries have registered combined inflows of $7.6bn, the IIF said. This makes the latest influx more powerful than those that occurred in February and October. All seven of the IIF’s countries registered inflows in the most recent week of data.
Neil Shearing, chief EM economist at Capital Economics, says markets are enjoying a relief rally spurred by the realisation that things are not as bleak as they appeared during the first weeks of 2016. “An awful lot of bad news was priced in,” he said. “The negative sentiment was a bit overdone.”
Only six or eight weeks ago, the fear on markets was that China was entering a crisis and commodity prices were in freefall. Now, that sense of dread has been lifted.
“Fears over China have ebbed, commodities have stabilised and the markets are seeing this as saying something about the state of demand rather than supply,” Mr Shearing said. “The sense of impending EM crisis has ebbed.”
The relief may have been supported by data out of China at the weekend.
They showed a moderate growth in fixed investment in January and February and — in spite of what David Hensley and colleagues at JPMorgan described as “soft” data on industrial output, “disappointing” trade figures and retail sales that had “moderated somewhat” — contained nothing to suggest investors should start panicking again.
The IIF’s data show that the broad EM sell-off that began in the middle of last year has been more gradual but roughly as deep as the “taper tantrum” of 2013, and much less severe than the sell-off that accompanied the global financial crisis of 2008-09.
凯投宏观(Capital Economics)首席新兴市场经济学家尼尔?希林(Neil Shearing)表示，市场如释重负般地展开一波反弹行情，其触发因素是人们意识到，形势并不像今年头几周所显示的那样黯淡。“很多利空消息已被反映在价格上，”他表示。“前一阵的负面情绪有点过头了。”