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Portfolio flows to emerging stocks, bonds decline by more than 90% in 2022
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Emerging markets attract $1.7 bln portfolio inflows in December
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Latin America best performing region in 2022, pulls in $60 bln
LONDON, Jan 11 (Reuters) - Emerging market portfolio flows slowed to a trickle in December taking total 2022 inflows to developing stocks and bonds to just $33.7 billion - a sharp drop on the previous year, data from the Institute of International Finance (IIF) showed on Wednesday.
Portfolio flows to emerging markets shrivelled to $1.7 billion in December from November's $36.6 billion, highlighting the challenges for developing economies ahead, the IIF said.
Annual inflows suffered a more than 90% tumble compared to the $379.6 billion developing markets attracted in 2021, after a year marked by rising interest rates worldwide and a strong U.S. dollar.
"While the expectation of a Fed pivot helped to improve the overall picture, there are still pockets of risk across the EM complex," the report led by economist Jonathan Fortun added.
The dollar has been weakening sharply across the board in recent months on hopes that U.S. inflation is on the way down, which - along with some signs the U.S. economy is under pressure - have driven expectations the Fed is close to the end of its programme of interest rate hikes, a good sign for developing economies.
The underlying picture was mixed for the year.
Inflows of $108.3 billion into emerging debt excluding China and $7.1 billion into Chinese equities offset China debt markets haemorrhaging $71.7 billion and emerging stocks outside China losing $10.0 billion.
Chinese stock flows turned positive only in the last two months of the year when foreign investors started piling in amid signs that the world's second largest economy would ease COVID-19 restrictions.
On a monthly basis in December, emerging market stocks excluding China fell $2 billion, while bonds outside China saw an outflow of $7.7 billion during the same period.
The report added that while China has attracted steady flows during recent years, non-resident investor flows to the country "have essentially ground to a halt" due to geopolitical risk.
The only region to experience inflows in December was Latin America, with $8.3 billion, while preliminary data for the full year showed $60 billion of inflows in 2022.
IIF expects a rebound on emerging markets dollar debt looking forward, though "if U.S. financial conditions tighten meaningfully, spread losses could outpace duration gains," the report added. (Reporting by Jorgelina do Rosario, editing by Karin Strohecker, Kirsten Donovan)
