Are capital inflows to EM set to accelerate?

Doha: Despite ongoing volatility, the year has been more constructive for capital flows to emerging markets (EM). This has been predicated by the g...

Doha: Despite ongoing volatility, the year has been more constructive for capital flows to emerging markets (EM).

This has been predicated by the global easing cycle led by the US Federal Reserve (Fed) and the European Central Bank (ECB) as well as the massive policy stimulus announced by Beijing in September.

Importantly, these supportive conditions emerged after several quarters of a more difficult environment following the aggressive monetary tightening that took place in major advanced economies in 2022, QNB said in its economic commentary. 

The more positive global macro backdrop is pushing capital towards EM. According to the Institute of International Finance (IIF), non-resident portfolio inflows to EM, which represent allocations from foreign investors into local public assets, experienced a significant shift from negative territory to positive in late 2023.

Such inflows led to a rally that is reflected in robust returns across different EM asset classes since their bottom in October 2023, including gains of 20.2% for equities (MSCI EM) and 19.6% for bonds (J.P. Morgan EMBI Global).