Emerging markets see positive investment flows as equity outflows ease

Emerging market investment flows turned positive last week as equity outflows from the asset class eased, the Institute of International Finance (IIF) reported on Monday.

The IIF’s weekly tracking data showed net inflows into emerging market equities and bonds, reversing a prolonged period of investor pullback. The shift followed a sharp deceleration in equity outflows, which had persisted for several consecutive weeks amid global risk aversion and policy uncertainty.

Total outflows from emerging market equities moderated to $1.2 billion in the week ending June 7, down from $4.8 billion the prior week, the IIF data indicated. This marked the smallest weekly outflow since late April, suggesting a tentative stabilization in investor sentiment.

Bond flows also showed signs of recovery, with net inflows of $800 million recorded during the same period. The improvement in fixed-income sentiment contrasted with the prior week’s $1.5 billion outflow, reflecting renewed interest from global fund managers.

The IIF attributed the stabilization to reduced concerns over aggressive U.S. interest rate hikes and a stabilization in key emerging market currencies. The group noted that while risks remained elevated, the pace of outflows had slowed materially, providing some relief to policymakers in vulnerable economies.

Emerging markets have faced persistent headwinds this year, including elevated inflation, tightening financial conditions and geopolitical tensions. The recent shift in flows, though modest, signals a potential inflection point for the asset class, though IIF cautioned that the outlook remains fragile.

Analysts said the data underscores the sensitivity of emerging market assets to shifts in global liquidity conditions and risk appetite. The IIF’s weekly tracker, which covers over 30 major emerging economies, is closely watched by investors for signs of shifting capital trends.

The improvement comes as U.S. Treasury yields stabilized and the dollar showed early signs of weakness, conditions that typically support flows into higher-yielding emerging market assets.