Hawkish Fed triggers emerging market outflows in September
TLT•Foreign investors pulled $26.3 billion from emerging market stocks and bonds in September, the first monthly outflow since June, as a hawkish Federal Reserve lifted yields and the dollar. Emerging market equities saw $19.2 billion in outflows, while fixed income lost $7 billion.
1. September outflows
Foreign investors withdrew $26.3 billion from emerging market stocks and bonds in September, according to a report by the Institute of International Finance. Fixed-income outflows totaled $7 billion, the first net outflows since March.
2. Equity and rate pressures
Heavy foreign selling of South Korean stocks drove a $19.2 billion outflow from emerging market equities. The report said pressure increased in the second half of the month, when hard-currency bond funds turned to outflows in the week of the Federal Open Market Committee decision and emerging market dollar credit spreads widened.
3. Fourth-quarter risks
The report said a hawkish Fed projecting further rate hikes, a Bank of Japan policy rate at its highest since 1995, and broad tightening across advanced economies raised the hurdle for emerging market carry into the fourth quarter.
