Foreign investors pulled a net $26.3 billion from emerging market bonds and equities in September, according to a report published by the Institute of International Finance on the 7th. It was the first month of net outflows since June, driven by rising U.S. Treasury yields and a stronger dollar amid the Federal Reserve's hawkish stance. Of that total, non-resident outflows from emerging market bond markets came to $7 billion, the first net outflow since March, when escalating conflict in the Middle East rattled global markets. Emerging markets came under pressure in September after the Fed, led by Chair Warsh, decided on its first rate hike since 2023 and signaled that inflation remained a continuing concern. Meanwhile, heavy overseas selling of South Korean stocks helped push September outflows from emerging market equities to $19.2 billion. The IIF noted that foreign investors' selling of South Korean shares has continued almost without interruption since the start of the year, peaking in September after the KOSPI rose 62 percent year to date.
The Fed hiked rates for the first time since 2023, pushing the effective federal funds rate higher.
Rising U.S. Treasury yields are cited as a driver of EM outflows amid the Fed's hawkish stance, implying higher 10Y yields.
