Emerging Markets Face Major Cash Outflows Amid Geopolitical Shocks

In March, foreign investors withdrew $70.3 billion from emerging market assets, marking the largest outflow since the pandemic's onset in March 2020. This withdrawal, driven primarily by exiting equities in Asia, followed significant inflows earlier in 2023 and was spurred by geopolitical tensions and market volatility.

Foreign investors withdrew $70.3 billion from emerging markets in March, representing the largest outflows since the pandemic's March 2020 upheaval. The Institute of International Finance (IIF) released data revealing a significant retreat from equities and a drop in fixed income investments across Asian markets.

The shift underscores a dramatic reversal from the robust inflows recorded just months earlier, particularly in January, and is attributed partly to geopolitical unrest. The recent commencement of the Iran war in February led to soaring oil prices, which, in turn, dampened investors' risk appetite and stalled previously thriving EM asset portfolios.

Despite the broad outflows, not all regions suffered equally. Emerging Asian equities sustained major hits, whereas markets like China and Latin America managed to show resilience, maintaining positive inflow figures. Looking ahead, experts warn that ongoing global financial instability could further affect EM asset stability.

(With inputs from agencies.)