(Financial World) The pressure on U.S. debt has spread, and the "honeymoon period" of emerging market investment is over?
China News Service, Beijing, March 10 (Liu Liang) After nearly half a year of investment "honeymoon period", emerging markets are facing a pressure test.
Recently, as the 10-year U.S. Treasury bond yield continues to rise, international funds in emerging markets have seen their first net outflow since October last year.
The International Finance Association (IIF) recently released a daily cross-border capital flow report, showing that in February, the daily inflow of funds in emerging markets was about 325 million US dollars, but an inflection point appeared last week: the daily capital outflow was about 290 million US dollars, which is nearly half a year. For the first time, there was a single-day outflow of funds.
In the previous few months, investment in emerging markets can be described as international capital, and the speed of gold absorption has reached a new high.
"The positive momentum of capital inflows in early 2021 has weakened. Concerns about the US inflation cycle are awakening, and the rotation of the asset market has restricted the amount of capital flowing into emerging markets and increased downside risks." IIF said in its report. Explained.
IIF said that the recent rise in U.S. bond yields has invisibly amplified the sentiment of "shrinking panic", which may not be conducive to the inflow of funds from emerging markets in the future.
The net outflow of international funds in the stock and bond markets of emerging markets in the past two weeks has revealed investors' concerns.
"The accelerated recovery of the U.S. economy is attracting the backflow of global capital. Coupled with the decline in investor risk aversion, rising U.S. bond yields have strengthened the dollar, which has pushed emerging markets under further pressure." IIF chief economist Robin Brooks said.
Industry analysts pointed out that compared with developed markets, similar assets in emerging markets generally have higher rates of return and higher risks.
When the rate of return on assets in developed markets rises significantly, this may weaken the attractiveness of emerging market assets.
The recent rise in U.S. bond yields has exacerbated this tension.
But this may be just the tip of the iceberg.
Many Wall Street analysts also said that U.S. officials, including Fed Chairman Powell, have repeatedly stated that before the employment problems in the United States have not been effectively alleviated, the policy is expected to maintain a loose monetary environment and downplay investors’ views on the U.S. Worries about rising bond yields.
This statement not only disappointed investors who had been looking forward to the Federal Reserve's intervention in the bond market, but also strengthened the market's expectation that U.S. bond yields will continue to rise.
Chen Fengying, a researcher at the China Institute of Modern International Relations, said that international capital flows have always been closely related to the trend of the US dollar.
Since May last year, the United States has implemented unlimited quantitative easing, which has caused the dollar index to fall. Capital flows seeking higher returns have stimulated capital flows to emerging markets to a certain extent. However, if the dollar continues to strengthen, emerging markets will be suppressed to a certain extent. .
Right now, the flow of funds has become a realistic pressure that emerging markets have to face directly.
"Only 10 days ago, investors believed that US interest rate hikes were just a piece of cake for emerging markets, but the pendulum began to turn. If US interest rates continue to rise, emerging markets will suffer heavy losses," RobinBrooks said.
Insman Group, a world-renowned hedge fund, said that rising U.S. interest rates are making emerging markets increasingly dangerous.
BlackRock and other large financial institutions have also issued warnings about the prospects of emerging market bonds and hinted that the voices of market concerns will not stop abruptly.
Many analysts said that this trend of capital outflows may continue in the short term.
At present, market investors are still watching the Fed's policy direction.
However, no matter how the Fed "strokes", it is an indisputable fact that the current flow of funds into emerging markets has slowed down.
According to IIF data, the amount of funds flowing into emerging market stocks and bonds in February this year has fallen sharply to US$31.2 billion from a record high of US$76.5 billion in November last year.
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