Net flows into emerging market assets were $17.1 billion (€16.2 billion) last month, meaning the region’s markets continued their comeback after a disappointing end to 2016.
The Institute of International Finance (IIF), a trade group of financial institutions, said that after substantial outflows in the fourth quarter of last year, the first two months of 2017 had seen $31 billion of inflows into emerging market assets.
Debt was the most attractive emerging market asset class last month, enjoying inflows of $10.9 billion, followed by equities with $6.2 billion of additional capital.
However, the IIF “remain cautious”. While emerging market valuations are attractive, there are potential headwinds for the regions, including a US-led shift towards protectionism. The body said that this may lead emerging market investors to be more selective this year.
China still provokes caution although outflows eased from $67 billion in December to $57 billion in January. The IIF said that stricter capital controls contributed to slowing down the outflows but a stronger dollar and higher interest rates could reverse that trend.
Flows into Brazil remain “robust” according to the IIF, with a more pronounced upswing in capital flows into Russia and Turkey this year.
The IIF’s figures for Brazil reflect hedge fund and mutual fund interest in Brazil and wider Latin America. Last year, Latin America provided hedge funds with their largest returns.
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