As US Treasury yields soar rapidly, global investors are pulling money out of emerging markets stocks and bonds. This is because when interest rates in advanced countries such as the US begin to rise, the attractiveness of investment in emerging countries is relatively weak.
The Financial Times (FT) reported on the 7th that, on the 7th, citing data from the International Financial Association (IIF), last week, an average of 290 million dollars (about 328 billion won) of capital per day in 30 emerging countries, including China, Russia, and India, was drained. This is the first time since October of last year that a net outflow of capital has occurred in emerging countries on a weekly basis.
Global investors poured $180 billion of funds into the stock and bond markets in emerging countries in the fourth quarter of last year following the news of the development of the Corona 19 vaccine. Even this year, this atmosphere hasn’t changed much. In January, the net inflow of capital into the emerging markets amounted to $20 billion, and in February, an additional $10 billion was added.
However, with the recent surge in US Treasury yields, more and more investors are stepping out of emerging markets. Assets in emerging economies generally become less attractive as bond yields in developed countries rise. This is because the method of borrowing money from developed countries with low interest rates and investing in emerging countries with high interest rates becomes difficult to make an effect.
The 10-year Treasury bond rate once exceeded 1.6% a year on the 5th. It jumped more than 1.0 percentage point in one year after reaching a record low of 0.54% per year on March 9, last year when the Corona 19 incident spread. Goldman Sachs predicts that the US Treasury bond rate could rise to 1.9% per annum at the end of this year.
Concerns about the so-called’austerity attack’ that hit the global financial market in 2013 are also growing. At the time, when the Fed announced that it would reduce the size of its asset purchases, the interest rate of US Treasury bonds also skyrocketed. Fed chairman Jerome Powell has announced a policy of continuing the monetary easing policy, but there is also a prospect that if inflation and economic recovery are faster than expected, tightening may occur.
IIF Chief Economist Robin Brooks said, “It is surprising that capital is running out of emerging economies, given that the global economy is still in its early stages of recovery.”
Reporter Ahn Jung-rak [email protected]
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