S$1.05 trillion of funds flowed out of emerging markets in 2015

Net capital outflows amounted to around US$735 billion (S$1.05 trillion) in 2015, the highest on record.
Net capital outflows amounted to around US$735 billion (S$1.05 trillion) in 2015, the highest on record.PHOTO: REUTERS

SINGAPORE - Investors withdrew hundreds of billions of dollars from emerging markets last year (2015), dealing another blow to nations already suffering from slowing growth, high debt and plunging commodity prices.

Net capital outflows amounted to around US$735 billion (S$1.05 trillion) in 2015, the highest on record, said the Institute of International Finance (IIF).

Foreign capital flowing into emerging markets also dropped sharply to US$231 billion, a fraction of the US$1.2 trillion or so that came in a year between 2010 and 2014.

The speed of the outflows has caught analysts by surprise, with the bulk of the withdrawals occurring in the second half of last year.

The pace and size of these outflows have eclipsed the amounts seen in the 1997 and 2008 financial crises.

China accounted for the bulk of the net outflows last year with about US$676 billion withdrawn from the world's second largest economy last year.

DBS chief economist David Carbon was not surprised, saying the China reserves data in December already showed the sharp fall.

He noted that since July 2014, the Chinese government has used US$663 billion of the country's reserves propping up the yuan.

"About half that amount was spent between June 2014 and August last year, pushing the yuan north with the US dollar in an attempt to show 'leadership' in the run-up to the International Monetary Fund's (IMF) decision to include the yuan in the SDR basket," he said.

"The other half was spent since August when the 'mini-devaluation' encouraged investors to run for cover and forced the central bank to further support the currency."

Chinese stock markets have taken a battering over the past six months, falling by about 42 per cent since June last year.

The MSCI Emerging Market Index, which tracks the performance of the biggest emerging market companies, fell 14.9 per cent last year.

Aberdeen Asset Management (Asia) managing director Hugh Young said that the numbers are dire but they reflect what has happened, rather than what is to come.

"Economies are struggling worldwide and quantitative easing has not worked but many companies are strong and we're not in a real crisis , apart from investor psychology," he said.