"Foreign Capital Withdraws 50 Trillion Won from Emerging Markets Since COVID-19 Outbreak"

[Image source=Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] Since the outbreak of the novel coronavirus infection (COVID-19), the amount of foreign capital withdrawn from emerging markets has exceeded 50 trillion won. Considering the global stock market crash and the flow of funds into safe assets, the speed of capital outflow from emerging markets is expected to accelerate further.

According to major foreign media on the 12th (local time), the Institute of International Finance (IIF) reported that over the 51 days since January 21, when COVID-19 first occurred, foreign investors sold assets worth $41.7 billion (approximately 50.1 trillion won) in emerging stock and bond markets. This amounts to about 1 trillion won per day. This figure is twice the amount of capital outflow during the same period after September 8, 2008, during the global financial crisis. At that time, the amount of non-resident assets withdrawn overseas was around $23 billion.

Robin Brooks, Chief Economist at the IIF, described the figure as "very large" and analyzed that it means "the financial conditions in emerging markets are tightening significantly." Through his tweet, he pointed out that "due to COVID-19 uncertainty, a 'sudden stop,' meaning large-scale capital outflows from emerging markets, is widely occurring," and that "the current level of capital outflows from emerging markets surpasses those during the 2008-2009 global financial crisis and the 2013 taper tantrum."

Capital outflows were more prominent in the stock market than in the bond market. The MSCI Emerging Markets Index plummeted 17.46% from 1146.83 on January 17 to 946.62 on the 11th. The Korean KOSPI Index and Argentina's MERVAL Index fell 17.94% and 25.79%, respectively, during the same period, while Mexico's benchmark IPC Index also dropped 15.58%. In the bond market, funds have been rapidly flowing out since the end of February. The JP Morgan EMBI spread, which indicates concerns about emerging market financial markets through the bond yield gap between developed and emerging countries, rose 17.37% compared to the previous day on the 9th, surpassing the 400 level and reaching 498 on that day. The EMBI spread rising to the 400s is the first occurrence since January last year.

This content was produced with the assistance of AI translation services.