Emerging market inflows slow after strong January show, as net performance dip $21.7 billion

Zambian financial markets reopened on Friday after remaining closed on Thursday in observance of the Youth Day public holiday. Meanwhile, foreign investors significantly reduced their purchases of emerging market assets in February, with net inflows falling to US$21.7 billion, well below January’s record high of US$100.5 billion and lower than the US$45.5 billion recorded in February last year, according to the latest data from the Institute of International Finance (IIF). According to market commentary by Access Bank Group, the slowdown reflected a normalisation of investment activity following an exceptionally strong January rather than a major shift in investor sentiment.

“The IIF described February as a return to more typical flows following January’s outlier performance,” the commentary noted. A breakdown of the inflows showed that emerging-market debt attracted a net US$14.3 billion, while equity inflows moderated sharply to US$7.4 billion from US$28 billion recorded in January. Debt inflows in February were distributed across regions, with Asia receiving US$5.9 billion, Latin America US$4.3 billion, emerging Europe US$2.6 billion, and the Middle East and North Africa US$1.5 billion.

For equities, the picture was more mixed. China attracted US$5.2 billion, while non-China emerging markets recorded combined inflows of US$2.2 billion. Latin America led allocations with US$6.9 billion, followed by smaller inflows to emerging Europe and the Middle East and North Africa.

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However, Asia experienced net outflows, largely driven by investor selling in markets such as South Korea. The February figures were compiled before the deterioration in global risk sentiment triggered by the escalation of the Middle East conflict in early March. Early market movements in March already point to a retreat from emerging-market equities and risk assets more broadly, suggesting that portfolio flows for the month could slow further.

Despite this, the IIF expects emerging-market flows to remain broadly resilient, although increasingly differentiated. Countries with strong economic fundamentals — including credible fiscal and monetary policies, solid external buffers and deep domestic markets — are likely to continue attracting capital, particularly into local-currency debt offering relatively high real yields. This material, and other digital content on this website, may not be reproduced, published, broadcast, rewritten or redistributed in whole or in part without prior express permission from ZAMBIA MONITOR.

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