According to information from the International Institute of Finance (IIF), emerging markets attracted $17.9 billion in investments in financial instruments, such as debt and equity bonds, in October, a monthly increase of 139%. Nearly 4 billion of these investments went to Latin America.
“This year, capital flows will be relatively lower than last year,” attributable mainly to pandemic shock and high market uncertainty. However, it is important to emphasize that we are surprised by the strength of fixed income flows, as we have seen significant dollar sovereign debt issues for several emerging countries,” says Jonathan Fortun, IIF economist, to the newspaper El País de España, referring to the purchase of government bonds by foreign investors. In the Latin American region, says Fortun, the countries that saw the largest financial investments in October were Chile, Brazil, and Colombia.
In recent months, the Fed’s financial stimulus in the United States and interest rates defined by the European Central Bank at the all-time low of 0% have led investment funds to look for higher-risk alternatives and better yields, such as investments in Latin America. Also, with advances in vaccines for COVID-19, the growth outlook for the global economy improved. This boosted investments to emerging markets in October, says IIF.
Jonathan Fortun explains that “flows have declined, and in some places, they have even become negative, which is common in a context of high uncertainty due to elections.” The economist says that “in the short term, the key factor for capital flows will be the clarity of the results of elections in the U.S., a more important factor even than which candidate will be elected.” If the results are clear and concetic at the end of the vote, the IIF expects markets in general to see this as a sign of reduced uncertainty. And on the contrary, if the results are unclear and the winner is not known in the short term, uncertainty and risk levels may rise, Adds Fortun.