국제무역
Geopolitics and emerging market capital flows
The rise in geopolitical risk and mounting trade tensions should have a counterpart in financial deglobalization, as investors pull back from global trouble spots. Most obviously, if friendshoring is a material phenomenon, this should be reflected in foreign direct investment flows, with, for example, stronger flows to Mexico, while China should see weaker inflows or even outflows. A similar trend may be visible in portfolio flows if Russia’s invasion of Ukraine makes markets wary of potential conflict zones. China and Taiwan are clearly a worry here. We assemble quarterly data on nonresident portfolio and direct investment flows to 25 emerging markets (EMs) from 2000 to 2024. These data show a healthy picture for EM overall, though China is a negative outlier. China has seen nonresident portfolio inflows weaken significantly from before Russia invaded Ukraine, in addition to foreign direct investment flows also softening recently. While these data points are consistent with financial deglobalization, a proper investigation will compare flows to a counterfactual linking them to underlying fundamentals such as interest and growth differentials. We leave a more definitive assessment of financial deglobalization for a follow-up post.
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