Russia’s “pariah” status in the international investment community after the invasion of Ukraine may be behind “unprecedented” cash flows from China, the Institute of International Finance (IIF) said.
Many emerging markets and global investors are facing large declines in their Russian holdings due to world-wide sanctions imposed after last month’s attack, which makes Russia “uninvestable” for some.
“At this stage it is too early to say whether the war is leading to outflows or whether other factors are to blame,” said Robin Brooks, chief economist at IIF.
“But we consider these outflows to be significant enough to increase the likelihood that Russia’s invasion of Ukraine will lead world markets to see China in a new light,” he said.
He said the connection with Russia would be consistent with the relatively recent nature of the outflows.
Flows to China’s bond and equity portfolios have largely been maintained even through a sell-off of equities and bonds sparked by a policy change from Beijing that pushed the real estate sector last year.
Net monthly flows to emerging markets outside China had almost stopped in the last quarter of 2021 and the trend continued in 2022.
What is unprecedented, the IIF says, is that investors are withdrawing from China while other emerging markets are holding up better.
Investors may fear that if China actively supports the Russian invasion, it will put it in line for a round of sanctions similar to that of Moscow.
Source: Capital
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