Emerging market flows

Yes, I am feeling much better. Thanks for asking (Editor: No one asked). Must be a summer cold or something. Still a little under the weather, but not too bad. (Editor: Yeah, no one really cares.)

Anyway, I promise to get back to the ILO report, because there is a lot in there. But right now, I wanted to talk about something that just came out in the news.

Emerging market flows fell a lot in July: $1.3 billion. Bond investments also fell by $100m. It was mostly China (negative $500m net inflows) and South Africa (negative $600m), but even Vietnam saw falls. In ASEAN, only Thailand saw inflows.

We actually haven’t seen an impact on the VNM ETF, which rose by a very small amount (+0.7%) from the end of June to today. That’s despite the depreciation of the VND.

Looking over the past few years, Vietnam has been doing quite good in the context of ASEAN. Net inflows since 2010 have been $4.35bn, compared to $8.3bn for Indonesia, $1.6bn for Malaysia and $11.7bn Thailand. On a per capita basis, Malaysia is doing just a bit better, $50 per person compared to Vietnam’s $46. Also, putting it like that, the investment seems pretty small!

But still, Vietnam had a great year last year (Indonesia, Malaysia and Thailand all had net equity outflows in 2018), and this year has been pretty good as well, despite July. Net equity inflows to China, meanwhile, are down almost 60% through June. That’s gotta hurt.

We have talked about this before: live by foreign capital, die by foreign capital. It can come and go quickly and capriciously. If you then have to invest a lot of hard currency to service this investment (say in energy, in inputs), a country could quickly come into problems with the currency, and then with defending the currency. It’s risky and limits maneuverability. That’s why I advocate at the least, heavy investment in renewables.

But good on Vietnam for taking advantage of the current trade war. Good luck not getting burned by the Trump administration going forward.

VietEcon

Emerging market flows

VietEcon