Where has all the money gone? US-China trade war triggers capital flight from emerging Asian markets
- Recent flare up in trade tensions between the US and China led to outflows of more than US$2.5 billion in Chinese equities last week
- Inflows into global bond funds has been accelerating at their fastest pace since 2002
Trade war fears have triggered abrupt capital flows around the globe, as funds flee equities to seek shelter in lower risk assets and less trade dependent regions.
Data from Jefferies and the Institute of International Finance showed that emerging markets saw the largest capital outflow in eight months, while inflows into bond funds grew at their fastest pace in 17 years. Global equities ETF (exchange-traded funds) meanwhile posted a combined outflow of US$22.6 billion over the past two weeks, according to data from Bloomberg as of Thursday afternoon.
The outflow from equities has reversed the previous five-week inflow streak, as investors became increasingly risk-averse due to the escalating trade war between the US and China, according to analysts from Jefferies.
“The bottom line is while equity markets have floundered over the past week or so, they have not fallen enough to entice buyers,” said Sean Darby, chief global equity strategist for Jefferies.
Separately, recent data from IIF also showed emerging markets registered the largest capital outflow this week since October 2018 at US$1 billion. The initial trade frictions between China and the US then triggered an outflow of around US$1.1 billion.
The main driver of the outflow was emerging markets equities, in particular China.
