Capital Flows into Emerging Markets Gains Momentum

After a pause last year and in the first quarter of this year, net capital flows into emerging market economies has picked up in 2nd quarter and has gained momentum in the last quarter. Net private capital flows into emerging markets is projected to be $349B th year compared to $649B in 2008. In 2010, it is expected to reach $672 B. This is because historically a long low rate interest environment in developed will lead to higher capital flows to emerging markets.

Countries that are the receipents of the largest amount of portfolio equity investments are Asia (Korea, China and India), South Africa, Brazil and Russia.

The effect of all these capital flows into emerging markets are driving those markets higher. Asia and Latin America are leading the Emerging Europe as the chart shows below:

Sources:

Capital Flows to Emerging Market Economies, Institute of Internationl Finance

Impact of the Global Financial Crisis and Its Implications for the East Asian Economy, IMF

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