Emerging markets saw a strong revival in investor appetite last month as non-resident investors added $26.9 billion to EM equity and debt portfolios, according to the Institute of International Finance (IIF).
This marks a sharp rebound from $21.1B in September and a $5B outflow in October 2024 — signaling renewed confidence in developing economies amid expectations of further U.S. Federal Reserve rate cuts.
🔹 Key Highlights
- 💸 Total Inflows (October): $26.9 billion
- 📈 Equities: $12.9 billion — highest since July
- 💰 Debt: $14.4 billion — weakest since April
- 🇨🇳 China: $3.5B inflow into stocks offset by $3B outflow from debt
- 🌏 Top Regions:
- Asia — $16.5B inflows (led global trend)
- Europe, Latin America, Africa & Middle East — $3–3.8B each
“The most striking shift in October was the recovery of EM equity allocations,” said Jonathan Fortun, Senior Economist at the IIF.
🔹 Investor Behavior
- 📊 Flows favored investment-grade issuers with strong liquidity and transparency.
- 💵 Demand remained high for local-currency EM debt, where real yields are historically strong.
- 🏦 The rally was fueled by expectations of a second consecutive Fed rate cut — with markets pricing in another 25 bps reduction in December, despite mixed signals from policymakers.
🔹 Macro Context
The October surge represents the broadest regional improvement in EM inflows in over a year, with both Asia and Latin America attracting sizable foreign allocations.
However, IIF warned that “key fault lines remain visible,” citing uneven recovery across lower-rated issuers and slower sovereign issuance following a strong Q3.
📌 Summary Insight:
The return of capital to emerging markets underscores investor confidence in high-yield, high-growth regions — but selective risk appetite shows the focus remains on quality, liquidity, and policy clarity.