The dynamics of Global Investment Funds flows in 1Q19 can be characterized by a widening bond-equity divergence, and a visible moderation in inflows to EMs. Looking ahead, we expect EM outflows to continue at a moderate pace until global volatility eases. In a risk scenario, EMs to face more intense and persistent outflows.

Key points

  • A sharper than expected deterioration in global growth outlook, uncertainty surrounding trade protectionism and Brexit, and reinforced monetary policy accommodation by the Fed, the ECB as well as in China, has driven GIFs flows towards hard currency assets such as bonds rather than growth-sensitive ones such as FX and equities.
  • The pullback in EM flows as seen since start 2019 was in line with our model-predicted baseline scenario one quarter ago.
  • Looking ahead, economic-policy reaction still favors a soft landing of the global economy, but a sharper slowdown in China, a new wave of protectionist measures and a disorderly Brexit, could trigger more negative scenarios.

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