Emerging markets suffer £600bn outflow of funds

A mix of official data and estimates by NN Investment Partners, an investment bank, has revealed that the 19 largest emerging market economies saw a total net capital outflow of around £600bn ($940.2bn) over the past 13 months.

The bank, based in the Netherlands, reported the figure, which is almost double the net outflow in a nine-month period following the 2008 banking crisis.

Across the regions

Turkey, Brazil, Mexico and Asian economies have all been affected by the flow of capital away from them, with funds heading back to the US and Europe.

Many analysts fear that the near-$1tn figure shows that the tide is turning against the newly emergent stars of the global financial stage.

Double whammy

The report also shows that these emerging markets are spending increasing amounts on servicing foreign debt payments.

As their currencies lose value, it becomes correspondingly more expensive to meet repayment obligations with the result that foreign currencies reserves are being used up.

One result of this is that investors are pulling funds out of emerging markets by selling property and stock market assets. Another drain is simple withdrawal and repatriation of cash from local banks.

Rate rises

The much-anticipated interest rate increases in the US and UK from the current historically low levels will undoubtedly pile on the pressure for developing economies. Those who borrowed cheap dollars after the 2008 crash will be particularly hard hit.

Together with turbulence in Asian foreign exchange markets and the recent woes affecting the Chinese economy, the current direction of movement for international funds looks likely to loom large over the global economy in the coming months.