The Institute of International Finance’s (IIF) daily capital flows tracker yesterday showed a sharp reversal in Emerging Market (EM) capital flows following the brief recovery in June and July. A reversal signal is triggered when the 7-day moving average for EM capital flows goes below the 1.5 standard deviation band around the longer, 28-day, moving average.
The current reversal looks similar to the “trade tantrum” experienced in May of this year. Following the announcement of a planned implementation of 10 percent tariffs on the remaining $300bn of Chinese exports late last week, Chinese equities experienced nearly $1bn in net outflows in a single day.
On the same day, other EM Asia countries also experienced heightened outflows, with India seeing over $400m, Korea at $270 m, Taiwan at $760m (over two days), and Thailand at nearly $120m. Vietnam also saw a shift from net inflows to net outflows but was relatively moderate at $18m. This week has not started off any better, with all EM equity markets experiencing net outflows so far.
Despite most trade disputes originating in Asia, other EM equities outside Asia have also seen large outflows, following a very brief recovery from the last “trade tantrum”. Brazil and South Africa remain the largest contributors.
