Potential US default threatens EM investor confidence

Asia’s credit markets are at risk of losing their recently gained bond investor inflow momentum as fears of a potential US default mount.
Investors are cautious towards emerging market asset classes amid concerns over the US government shutdown and debt ceiling discussions.
Investors are cautious towards emerging market asset classes amid concerns over the US government shutdown and debt ceiling discussions.

Emerging market funds returned with a bang in September but such impetus is unlikely to continue into October as the ongoing US debt ceiling debate and fears of a default could take a toll on market sentiment, potentially prompting investor outflows.

Following inflows of $560 million into emerging markets for the week of September 23, investors withdrew a net $240 million from bond funds last week, according to EPFR data. Outflows were primarily led by local currency bond funds with $292 million, followed by hard currency bond funds with $155 million. In contrast, blended currency funds still received inflows of $217 million.

The general outflow reflects the...

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