Tariff fears trigger $17.1 billion outflows from EM debt, stocks in March, says IIF

By Karin Strohecker

LONDON, April 10 (Reuters) - Tariff worries and global uncertainty triggered portfolio outflows from emerging market bonds and stocks in March, especially from China, fading out a positive start to the year, the Institute of International Finance (IIF) said on Thursday.

Total non-resident flows registered a net outflow of $17.1 billion dollars across emerging market fixed income and equities - the first time flows had turned negative since Donald Trump won the U.S. election in November and the biggest monthly outflows since August 2023, the IIF report showed.

Equities saw outflows of $12.4 billion, with almost three-quarters of that coming from Chinese stocks. Losses in bonds were also driven by China fixed income market, which haemorrhaged $6.7 billion, more than offsetting the $1.9 billion of inflows into emerging market debt elsewhere.

"This deterioration in flows came against a backdrop of mounting global uncertainty," said Jonathan Fortun, senior economist at the IIF.

While details on the main plan of the Trump tariff regime were only spelled out on April 2, investors had spent much of March repositioning in anticipation of U.S. trade measures.

By end-March, "positioning had already adjusted in ways that reflected growing anxiety over a possible new phase of trade fragmentation, with EM assets caught in the crosscurrents," said Fortun.

Markets have had a bruising start to April.

The April 2 announcements, dubbed "Liberation Day", sparked a stunning rout in stocks that transcended into bond markets. On Wednesday - exactly a week later - Trump reversed course and said he would temporarily lower the hefty duties newly imposed on dozens of countries, sparking a relief rally, though he further ramped up pressure on China.

Looking ahead, the picture remains uncertain, the IIF said. The first two days of April saw sharp outflows though there was a stabilisation on April 3, while the start of the current week saw a rebound in flows, the report found.

"This suggests that markets may have partially priced in the structural shift ahead of time, though sentiment remains tentative," said Fortun. "With global rates elevated and policy uncertainty persisting, risk appetite is likely to remain constrained."