In January 2024, $35.7 billion was raised in emerging markets

In January 2024, the influx of capital into emerging markets continued – a total of $35.7 billion was raised, according to data from the Institute of International Finance. Positive inflows were recorded for the third month in a row. It occurred due to an increase in investments in the external debt of developing countries – Poland, Mexico and Saudi Arabia, as well as in bonds in national currencies. This trend, however, does not apply to China: there was an outflow from debt instruments in the amount of $4.7 billion. An outflow was also observed on the Chinese stock market (minus $3.2 billion; for comparison, $3.8 billion flowed out of all other emerging markets) . The People’s Bank of China, we recall, has already announced additional stimulus measures by reducing reserve requirements.

Increased investor interest in securities of developing countries is noted against the background of the expected easing of policy by the US Federal Reserve. Let us recall that at the end of the January meeting, the Fed kept the rate at 5.25–5.5%, adding an indication that the risks of achieving employment and inflation targets in the United States were “shifting towards a better balance.” The wording about the need for further tightening of policy was replaced by an assessment of the prospects for a rate reduction. However, the Fed has indicated that the process of easing its policy will not begin until the regulator is confident that inflation is approaching the 2% target. The flow of funds into emerging markets may increase in the coming months. This trend, however, could easily reverse if the Fed sticks to tougher rhetoric, IIF said.

January inflation in the US increased by 0.3% month-on-month and 3.1% year-on-year (this is higher than expected); core inflation was also higher than forecast: it grew by 0.4% month-on-month and 3.9% year-on-year by the year. In the first case, this is a maximum from August 2023, and in the second – from April, according to a review by Dmitry Polevoy from Astra Asset Management. The growth of three-month inflation in annual terms accelerated from 1.9% to 2.8%. The main indicator that the US Federal Reserve focuses on is the consumer spending deflator, which reached its maximum since September 2022, amounting to 0.7%. The increase in inflation indicates that the regulator will be slower than the markets believe in normalizing its policy, believes Dmitry Polevoy.

Tatiana Edovina