Outflow of Funds From EM Expected to Continue

The risk that the Federal Reserve starts winding down its asset purchases sooner rather than later could spark another emerging market (EM) sell-off, analysts told CNBC, with some countries better placed to deal with higher real U.S. interest rates than others.

EM funds made a comeback in July – posting gains for the first time since March, according to Morningstar research – after taking a battering on uncertainty surrounding the end of the Federal Reserve’s massive stimulus program. .

While Friday’s disappointing U.S jobs data helped ease fears of an imminent end to asset purchases, Luis Costa, emerging markets strategist at Citi, said that the possibility the Fed might start the tapering process after its next meeting could cause another EM sell-off.

“We are still seeing outflows in EM funds, albeit at a decelerated pace to what we saw 2 or 3 months ago,” Costa told CNBC on Monday. “While I do believe the tapering call in September is definitely questionable, we do know that we are talking about a scenario where the Fed are willing to change QE [quantitative easing] dynamics over the next 6 months.”


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Mingze Wu

Mingze Wu

Currency Analyst at Market Pulse
Based in Singapore, Mingze Wu focuses on trading strategies and technical and fundamental analysis of major currency pairs. He has extensive trading experience across different asset classes and is well-versed in global market fundamentals. In addition to contributing articles to MarketPulseFX, Mingze centers on forex and macro-economic trends impacting the Asia Pacific region.
Mingze Wu