IIF: Emerging Markets See $18.8B Inflows in July, Ending Two-Month Net Outflow Streak
Nashnova编辑部
IIF data show $18.8 billion flowed back into emerging markets in July, ending two straight months of withdrawals — but the money went only into bonds; equities still bled, and China was the sole market losing on both sides.
$18.8 billion came back — where did it go?
Non-resident investors put a net $18.8 billion into EM bonds and equities in July, after outflows of $25.2 billion in May and $18 billion in June. This means → foreign capital shifted from retreat to a tentative re-entry.
Nearly all of it went to bonds: $26.7 billion net inflow. Equities still posted a $7.8 billion net outflow. In plain terms = investors are willing to lend to emerging markets, but not yet willing to own their companies.
The equity bleed did slow sharply — from $46.1 billion out in June to $7.8 billion in July. IIF senior economist Jonathan Fortun said the equity drag had "shrunk to a fraction of its June scale."
Asia flipped positive, China didn't — why?
Asia swung from a $27 billion net outflow in June to a $9.3 billion net inflow in July — the biggest regional turnaround. Asian equity outflows narrowed from $40.5 billion to $4.8 billion.
China was the outlier: foreign investors net-sold $3.7 billion in Chinese equities and $3.4 billion in Chinese bonds, making it the only market with outflows on both sides. This means → inside the broader Asian recovery story, China is being priced separately.
Fortun noted the data "suggest the pressure concentrated in Asian equities is fading rather than spreading to fixed income." This reflects a market view that the Asian tech sell-off is a localized problem, not a contagion risk for bonds.
What does the year-to-date ledger look like?
Over the first seven months, EM bonds attracted a cumulative $214.4 billion, up from $177.7 billion in the same period last year. Actively managed EM bond funds posted net inflows for the first time since 2021.
Equities, by contrast, saw cumulative net outflows of $86 billion — roughly ten times the $9 billion outflow in the year-ago period. In plain terms = bond buying is accelerating while equity selling is deepening — the two lines are diverging faster.
This reflects a single core driver: sustained selling of tech-heavy stocks in South Korea and Taiwan, dragging aggregate EM equity data into deeply negative territory.
Why is sovereign-debt issuance hitting records?
EM sovereigns issued roughly $19 billion in bonds in July — about twice the ten-year average for the month. Year-to-date issuance reached approximately $187 billion, the highest on record for the period.
EM sovereign spreads narrowed in July to their tightest level in nearly twenty years. This means → investors are competing to buy; issuing governments are borrowing while the window is open — supply and demand are both surging at once.
Bond investors benefit from relatively high yields and mild currency volatility. In plain terms = interest is high enough and exchange rates are calm enough for carry trades to work — both conditions met simultaneously.
Where is the biggest risk?
The IIF flagged three tail risks: further Fed tightening, Bank of Japan intervention in the yen, and geopolitical shocks. Any one could break the carry-trade logic underpinning EM bond demand.
However, the U.S. July jobs report came in weaker than expected, shaking market conviction about a Fed rate hike next month. This means → if employment keeps softening, the tightening threat could flip into rate-cut expectations — a tailwind for EM bonds.
Whether equities can stabilize further hinges on whether pressure on Asian tech is truly fading or merely pausing. That is the key variable determining whether the bond-equity divergence can narrow.
Content is for reference only, not financial advice.