(Adds data, quotes from IIF)
By Dion Rabouin
NEW YORK Feb 9 Capital flows to emerging
markets will be negative in 2017 for the fourth straight year,
driven by sizeable outflows from China, the Institute of
International Finance said in a report released on Thursday.
In the outlook report called "Capital Flows to Emerging
Markets Eye of the Trumpstorm," IIF estimated outflows from its
group of 25 emerging market economies would total $490 billion
this year. It expects China to have around $1 trillion of
resident outflows, including errors and omissions, and $560
billion of net capital outflows.
"Net capital outflow from China continues, driven by the
desire by residents of China to diversify their wealth," IIF
Executive Managing Director Hung Tran said on a call with
"That means the pressure continues to remain on the Chinese
authorities to affect measures to control the outflow, including
using reserves to cushion downward pressure on the renminbi."
Excluding China, emerging markets should attract inflows of
$70 billion, nearly double the pace of 2016.
The outlook for overall negative capital flows in emerging
markets is based largely on reduced expectations for foreign
direct investment, which is expected to fall to its lowest level
since the financial crisis, and portfolio equity investment, IIF
Outflows from China surged to a record $725 billion last
year and could pick up further if U.S. companies face political
pressure to repatriate profits, the group said in a report
released earlier this month.
Non-resident capital inflows to emerging markets should
reach $680 billion this year, $90 billion less than the IIF's
projections before Donald Trump's surprise U.S. presidential
election victory. Still, that is up marginally from $676 billion
Capital inflows from non-residents had fallen to a 12-year
low in 2015.
The group says the biggest risk will be protectionist
measures to be introduced by the new Trump administration and
the outcome of the French presidential election.
The French elections will be key not just to what happens in
Europe, but also to the strength of the U.S. dollar, said IIF
Senior Director Donja Gibbs.
"We see the strong dollar trade coming off a bit this year
if the French elections go in a market-friendly direction and
therefore we get a rebound in the euro," she said during the
call. "That's going to play into a softer dollar and therefore
be supportive of emerging markets."
(Reporting by Dion Rabouin; Editing by Leslie Adler and Lisa