The organisation estimates net outflows to have reached $24.2bn (€22.9bn) over the month, with EM debt funds accounting for about two thirds of those. The figures confirm Donald Trump’s election indeed threatens to be a game-changer for emerging markets. The November outflows have put an end to a four-month string of net inflows into emerging market equities and debt. From July to October, European investors alone had been investing a net sum of €41.5bn in EM assets, with the majority of flows going into EM debt funds.
Emerging Asia, with net outflows of $15.9bn, was the region hardest hit by the ‘Trump Tantrum’, as investors fear the region will be affected by possible protectionist measures by the incoming Trump administration, as well as a more hawkish Fed. Net outflows from Latin American were more modest, but also relatively sizeable at $2.4bn.
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According to the IIF, an increase in Fed rate rise expectations (which is for a large part a consequence of the inflationary effects of some of Trump’s presumed policies) remains the largest explanatory factor for the outflows, just as was the case during 2013’s Taper Tantrum.
“Our behavioural model indicates that rising Fed policy expectations made a negative contribution of over $13 billion [to outflows] this month,” the IIF said. “Domestic factors were also a driver, perhaps including heightened concerns about the EM growth outlook given a less-friendly backdrop for global trade and EM exporters.