Capital outflows evoke the times of Lehman Brothers bankruptcy - September 05, 2015

Capital outflows evoke the times of Lehman Brothers bankruptcy

Recently, investors have been worrying about market turmoil and falling stock prices that's why foreign portfolio investment turned negative. In addition, a surge of capital outflows has risen on Black Monday the same amount as recorded for the autumn of 2008, during the week of the Lehman Brothers bankruptcy.

During the past couple of weeks stock markets have experienced a surge of capital outflows that mostly had an impact on the emerging markets from China to South-Africa. On 24 August alone, Black Monday, outflows totalled $ 2.7bn, the same as recorded for 17 September 2008, during the week of the Lehman Brothers bankruptcy – says Financial Times.

Two factors determined the outflow of stocks and funds: China’s slowdown and the fear that US would raise interest rate. This has resulted, for the first time in 2015, that outflows of capital has exceeded the inflows. According to the Institute of International Finance (IIF) report, outflows by cross-border equity investors totals to $8.7bn in August, after outflows of an estimated $100m in July and not to mention inflows of $800m in June.

file

Source: IIF, Bloomberg
Flows to EM bonds remained positive in August at $4.2bn, after $6.2bn in July and $3.3bn in June.

Cross-border flows to EM assets averaged just $3bn a month during the past four months, compared with an average of $22bn a month from 2010 to 2014.

file

Source: IIF, Bloomberg
According to Robin Koepke and Scott Farnham, group leaders of the IIF’s Portfolio Flows Tracker, since peaking at the end of April, the MSCI EM has dropped 27 per cent in dollar terms, implying a technical bear market. The background is most probably is the falling commodity prices and China’s slowdown.