By Libby George
LONDON, July 10 (Reuters) – A sharp retreat from tech-heavy equities in South Korea and Taiwan fuelled net emerging market stock outflows of $46.1 billion from foreign investor portfolios in June, banking trade group data showed, contributing to a second straight month of overall portfolio losses for developing economies.
The monthly report from the Institute of International Finance said on Friday foreign investors pulled $30.5 billion from South Korean stocks – the biggest outflows in more than 25 years – while Taiwan equities bled $18.3 billion.
However, the report showed a sharp split between equity and debt flows, with bonds pulling in $28.3 billion last month even as overall portfolio flows swung to a net loss of $17.8 billion.
“Investors are still willing to lend to EM,” IIF chief economist Jonathan Fortun wrote in the report. “They are less willing to add broad equity risk.”
Still, the report warned that a more hawkish U.S. Federal Reserve, under new chairman Kevin Warsh, and renewed oil volatility, could tighten dollar liquidity and raise the hurdle for emerging market risk.
Fortun also said that higher global discount rates, China uncertainty, weaker earnings confidence and sensitivity to tech and energy positioning led investors to cut equity allocations.
The data also showed sharp regional divides; emerging Asia recorded $27 billion in total portfolio outflows in June, while Latin America, emerging Europe and the Middle East and North Africa flows were all positive.
China equity outflows also accounted for $14 billion of the total, a significant swing from May’s $8.1 billion inflow, while foreign investors also notched $3.7 billion outflow from China’s debt.
“The first half message is clear,” Fortun wrote. “EM has still attracted capital in aggregate, but only because debt inflows have more than offset persistent equity liquidation.”
First-half sovereign issuance hit roughly $170 billion, the strongest first half in recent years, and net issuance was above $100 billion for the year.
June included international bond deals from Mexico and China, Latvia and Bahrain, “confirming that market access remained available across regions.”
(Reporting by Libby GeorgeEditing by Nick Zieminski)
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