65 Trillion Won Withdrawn from Emerging Market Bond Funds 'Largest Outflow in at Least 17 Years'

Concerns Over Additional Capital Outflows Due to US Tightening... Expectations of Benefits from Rising Commodity Prices

[Photo by Reuters Yonhap News]

[Asia Economy Reporter Park Byung-hee] According to major foreign media citing JP Morgan Chase statistics on the 10th (local time), at least $50 billion (approximately 64.88 trillion KRW) has flowed out of emerging market bond funds this year, marking the largest scale in at least 17 years.

This year's outflow is the largest in the 17 years since JP Morgan began compiling statistics, surpassing the previous record set in 2015 when concerns over the Chinese economy were high.

Marco Luizer, Emerging Market Portfolio Manager at investment bank William Blair, said, "The emerging market bond market has been caught in a massive storm due to inflation, central banks' monetary policy tightening, and the Ukraine war."

As funds flowed out on a large scale, emerging market government bond prices also plummeted. JP Morgan's dollar-denominated emerging market government bond index has fallen 18.6% this year, recording the largest loss ever.

Since the U.S. central bank, the Federal Reserve (Fed), has shown a strong willingness to further raise the benchmark interest rate, funds are flowing into safe assets, and the decline in emerging market bond prices is expected to continue.

Manager Luizer diagnosed, "Even before the Fed raised the benchmark interest rate, the situation of emerging market bonds was not good. As the Fed raised the benchmark interest rate, concerns about a recession increased, causing additional sell-offs of emerging market bonds."

However, there is also a forecast that emerging countries, which have experienced several capital outflow crises due to advanced countries in the past, have built resilience and will not suffer as severe a shock as before.

Lucier Sharma, Chairman of Rockefeller International, recently explained in a foreign media contribution that when considering the current account balance adjusted for currency values of emerging countries, the fiscal conditions of the top 25 emerging countries, including India and Brazil, are mostly solid. Chairman Sharma also diagnosed that many emerging countries proactively raised their benchmark interest rates from last year before the U.S. rate hikes, so the impact of future rate hikes will be minimal.

In the case of some resource-rich countries, benefits are also expected from the sharp rise in oil and natural gas prices. In Venezuela, Bloomberg's survey forecasted that the economic growth rate this year will be 8.3%, the highest in 15 years. Venezuela's economic growth rate last year was only 1.9%.

Manager Luizer said, "The shock of rising commodity prices due to the Ukraine war is a boon for some commodity-exporting countries. Since many emerging countries are commodity exporters, there will be many countries that gain unexpected windfalls."

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