June 5, 2018 / 8:22 AM / 16 days ago

Foreigners dumped $12.3 billion in emerging market assets in May - IIF

LONDON (Reuters) - A heavy sell-off in emerging markets last month saw foreigners dump a combined $12.3 billion of bonds and stocks, figures from the Institute of International Finance showed on Tuesday.

FILE PHOTO: U.S. Dollar banknotes are seen in this photo illustration taken February 12, 2018. REUTERS/Jose Luis Gonzale/Illustration/File Photo

The IIF said outflows were evenly split between debt and equity markets while regionally the biggest moves were $8 billion out of Asia and $4.7 billion from Africa and the Middle East combined.

There was selling at the end of April too, making this the second longest selloff for emerging markets on the IIF’s records. The longest followed the election of U.S. President Donald Trump in November 2016.

“No single driver of outflows from EM assets stands out,” the IIF’s analysts said in their report.

“Instead, a combination of factors appears to be at work: idiosyncratic domestic strains such as funding pressures in Argentina and Turkey or the truckers’ strike in Brazil, renewed U.S. tariff threats and retaliatory actions; and political uncertainty in Italy and Spain.”

Against a backdrop of higher global borrowing costs and a stronger dollar, there is also evidence that the downturn in sentiment is affecting a greater range of EM countries.

Year-to-date portfolio flows are still positive at some $46 billion but it is a sharp slowdown from the $134 billion registered during the same period of 2017.

An IIF index, which gives a score of the number of emerging economies where foreigners are selling assets compared to buying them, is also now lower both than after Trump’s election and the 2013 ‘taper tantrum’, when they were spooked by signs the U.S. Federal Reserve planned to scale back stimulus.

The index level is now only higher than after the peak of the financial crisis and after China’s surprise devaluation of its currency in 2015.

Reporting by Marc Jones; editing by John Stonestreet

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