(Bloomberg) — China has seen investors take money out of the country on an “unprecedented” scale since Russia invaded Ukraine in late February, marking a “very unusual” shift in global capital flows in emerging markets, according to the Institute of International Finance (IIF).
The high-frequency data detected large outflows of Chinese equity and bond portfolios, even as flows to other emerging markets continued, the IIF wrote in a report on Thursday.
“China's exits on the scale and intensity we are seeing are unprecedented, especially since we are not seeing similar outflows in the rest of the emerging markets,” IIF chief economist Robin Brooks wrote with colleagues. “The timing of the outflows, which were generated after the Russian invasion of Ukraine, suggests that foreign investors may be looking at China in a new light, although it is premature to draw definitive conclusions about it.”
Official data showed that foreign investors reduced their Chinese government bond holdings to a historic level in February, partly because the war between Russia and Ukraine spurred repayments among global bond investors. The sanctions froze the Russian central bank's foreign reserves in euros and dollars, sparking speculation that Moscow could sell its holding of Chinese assets to raise funds.
The Chinese stock market also plummeted earlier this month, as foreign investors pulled out, partly because of concerns that US and EU sanctions on Russia may somehow extend to China. The stock market has recovered since last week, as monetary policymakers pledged to support capital markets.
Padraic Garvey, head of global debt and rate strategy at ING Financial Markets, said it's too early to say if it's a trend. He added that the outflows may indicate that some investors decided not to reinvest bond income until “greater clarity emerged about the crisis in Russia.”
“Often, such flows can be driven by repayments that do not correspond to new money, as a steady flow of new money is required just for it to remain invested, particularly in bonds,” he said. “It could well be that net inflows will resume in the coming weeks and months.”
Original Note:
China Sees' Unprecedented 'Capital Outflow Since War, IIF Says
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