Bond issues help to bring more money into emerging markets

Capital inflows more than double to $17.9bn in October, up from $7.5bn in September

A worker in protective suit takes body temperature measurement of a woman inside the Shanghai Stock Exchange building. Emerging markets are on track for record sovereign and private external issuance Show more

Emerging markets attracted $17.9 billion in capital flows in October, up from $7.5bn in September, boosted by an improved outlook for the global economy, the outperformance of the technology sector and increased debt issuance, according to the Institute of International Finance (IIF).

Debt flows of $11.6bn, mostly to China and Asia, accounted for most of the portfolio flows with strong external issuance across emerging markets as governments and corporates raised more money, the IIF said.

"Emerging markets are on track for record sovereign and private external issuance this year," the Washington-based institute said. "Sovereign bond issuance by emerging markets in the third quarter slowed from the second quarter but the year-to-date data is high enough to allow a year of record issuance."

The increase in capital inflows slowed towards the end of the month, however, as markets became more volatile.

"Renewed concerns regarding a second wave of the pandemic as well as uncertainty arising from the US election, have limited the lift-off towards the end of the month," the IIF said in a November 1 report.

Flows to bonds issued locally have generally been weak, it added.

Equities accounted for $6.3bn of total inflows, given their sensitivity to political risk and uncertainty stemming from the upcoming US election.

In terms of geography, IIF data shows debt and equity inflows across all regions. Asia and Latin America were the best performers with inflows of $11.2bn and $3.9bn, respectively.

Uncertainty around the US election outcome and heightened restrictions across Europe due to a rise in the number of Covid-19 cases have made global investors nervous. The VIX index, which tracks market volatility, grew in value by 44 per cent over the course of the last month.

More than 46 million people have been infected by the virus globally and over 1.2 million have died from Covid-19, according to Worldometer. The US leads the world with more than 9 million cases and 230,000 deaths.