Foreign investment in emerging market stocks and bonds outside China has come to an abrupt halt over fears that many economies will not recover from the pandemic next year, their prospects worsened by the Omicron coronavirus variant and expectations of higher US interest rates.
In late November, non-resident flows to EM assets excluding China turned negative for the first time since the coronavirus-induced market ructions of March 2020, according to data from the Institute of International Finance.
“We’ve seen the willingness of investors to engage with emerging markets dry up,” said Robin Brooks, chief economist at the IIF.
“This is not only about isolated cases like Turkey,” where the currency has collapsed in recent weeks after the central bank persisted in cutting interest rates despite a steep rise in inflation, he added. “Turkey is a symptom of something much more broad based across emerging markets, and that is a lack of…