Emerging Market Capital Inflows Reverse July Losses, Reaching $18.8 Billion

Emerging markets reversed their losses in July, attracting $18.8 billion in capital after a $18 billion outflow in June, according to the Institute of International Finance (IIF).

The turnaround was largely driven by a significant reduction in outflows from stock markets. The IIF reported that debt markets saw inflows of $26.7 billion in July, while equity markets attracted $7.8 billion.

Asia emerged as the primary beneficiary, shifting from a drag to the market that captured the most flows with $9.3 billion. Latin America also saw a positive shift, attracting $5.5 billion compared to $2.5 billion previously. This was fueled by inflows into debt totaling $5.9 billion and nearly stable equity flows.

The IIF noted that this trend aligned with strong interest in assets offering high real rates late in the month. While the demand for debt remains broad and issuance continues to break records, the drag from equities has been reduced to a fraction of its June magnitude. However, the IIF cautioned that a more restrictive stance from the U.S. Federal Reserve, coordinated intervention in the yen, and renewed geopolitical tensions could challenge this equilibrium.