Hawkish Fed triggers emerging market outflows in September
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FILE PHOTO: The Federal Reserve building stands in Washington April 3, 2012. Investors are awaiting minutes from the U.S. Federal Open Market Committee's March 13 meeting that may provide clues on any potential quantitative easing. REUTERS/Joshua Roberts/
LONDON, Oct 7 (Reuters) - Foreign investors pulled $26.3 billion out of emerging market stocks and bonds in September, the first monthly outflow since June, as a hawkish US Federal Reserve drove up yields and the dollar, a report by the Institute of International Finance showed.
Non-resident investors pulled $7 billion from emerging market fixed income last month, the first net outflows since March when the escalating Middle East conflict roiled global markets.
Emerging markets came under pressure in September after the Fed under President Kevin Warsh raised rates for the first time since 2023 and signalled inflation remained a concern. The move sent US Treasury yields sharply higher, lifted the dollar and saw investors pull back from some riskier assets.
"The pressure built in the second half of the month, as hard currency bond funds turned to outflows in the week of the FOMC decision and EM dollar credit spreads widened," the report found.
"Looking ahead, a hawkish Warsh Fed that projects further hikes, a BoJ (Bank of Japan) at its highest policy rate since 1995 and broad tightening across advanced economies all raise the hurdle for EM carry into the fourth quarter," it added.
Meanwhile heavy foreign selling of South Korean stocks drove a $19.2 billion outflow from emerging market equities in September, the IIF found.
(Reporting by Karin Strohecker; Editing by Andrew Heavens)
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