Emerging market portfolios recorded their lowest total inflows since 2008 as investors responded to global shocks last year by buying fewer developing country assets, a report showed on Tuesday.
Nonresident investors cut inflows to emerging market assets to $28 billion in 2016, with debt portfolios recording substantial outflows, the Institute for International Finance said.
In December, portfolio outflows totaled $3.4 billion, predominately in debt, to give 2016 the weakest inflows for emerging markets since the global financial crisis. The $28 billion of inflows for the year was also 90 percent below the average from 2010 to 2014, IIF said.
Emerging markets have been particularly hard hit since the election in November of Donald Trump as U.S. president.
"No single factor stands out as the cause of the retrenchment in portfolio flows to emerging markets," IIF said in a statement. "Rising U.S. yields - partly as a result of the reflationary 'Trump trade' but also attributable to a more hawkish Fed - have been the main contributor to the weakness. However, idiosyncratic events in a number of EM countries, including Turkey and India, have weighed on domestic prospects, exacerbating portfolio outflows."
IIF reported earlier this year that Trump's victory had triggered a substantial reversal in fund flows, sparking the longest continuous "reversal alert" since the organization began issuing the report in 2005.
Win Thin, Brown Brothers Harriman's global head of emerging market currency strategy, noted uncertainty over terrorism and an attempted coup in Turkey, political instability in South Africa, nuclear threats from North Korea, and austerity and political risks in Brazil were also causes for concern.
"There’s a lot of country specific risk and that’s on top of a negative macro backdrop," Thin said. "That’s why I’m pretty negative on EM for the first half of this year."
Emerging market debt portfolios had $33.8 billion of outflows, while equity funds drew in $61.4 billion.
Net capital flows from China were the primary driver of outflows with an estimated $96 billion during the year, rising from $70 billion in October.
Turkey had the largest net capital inflows, at $37 billion, followed by India at $33 billion and Mexico at $30 billion. However, year-to-date net capital inflows to Brazil and India were almost less than half their 2015 levels.
The IIF tracks portfolio flows to eight countries - Indonesia, India, Korea, Thailand, the Philippines, South Africa, Brazil and Hungary.
(Editing by Dan Grebler and Jeffrey Benkoe)