October saw biggest exit from emerging stocks since taper tantrum – IIF

(Reuters) – Investors pulled the most money out of emerging market stocks last month since the ‘taper tantrum’ panic of 2013 when the U.S. Federal Reserve first hinted at reducing its post crisis stimulus programme, financial flows data has showed. Figures from the Institute of International Finance, which tracks what money mangers buy and sell, estimated a gross $17.1 billion was pulled out of EM stocks in October, also making it the fourth worst month since its records started in 2005. Against a backdrop of China trade and growth jitters, foreign investors pulled $12.3 billion from Asian emerging equity markets, distributed broadly throughout the region.

China, which had been a source of strength for EM flows this year, saw its highest monthly equity outflows since a mini-devaluation in 2015. “The EM equity carnage began early in October, triggering a Flows Alert on October 8. China, along with other key EMs in the global supply chain, were hit with outflows as the U.S.-China trade dispute escalated,” an IIF report said. In contrast to equities, rising yields attracted inflows of $9.5 billion to emerging debt markets, a six-month high.

The IIF’s broader measure of ‘net’ capital flows to emerging markets — the balance between buying and selling — also turned negative for the third quarter overall, following heavy selling in September too. That marked the first quarter of outflows since Q4 2016, though there could be a signal to the brave to buy. “It is worth noting that such a sharp month of (equity) outflows — a rare occurrence — tends to be a buying opportunity,” the IIF said referring to the October exodus. “In the 4 months we have on record since the 2008-09 crisis that have seen least $10 billion in equity outflows, the subsequent 12 months saw an average of $65 billion in inflows.”