IIF: Capital flew out of emerging economies in August

Capital streamed out of emerging-market economies in August as panicky investors dumped equities to the tune of $8.7 billion, according to data from the Institute of International Finance.

Net outflows of capital totaled $4.5 billion, with debt inflows only half offsetting the equity selloff, the IIF reported late Thursday.

It was the first month this year of net negative capital flows to emerging markets (EM), and contrasted with a calm July, when equity outflows were only $100 million, compared to debt inflows of $6.2 billion.

The outflow was particularly intense on Monday, August 24, triggering a "Flows Alert" for the IIF, a global banking research and lobby group.

"That day alone, the seven countries in our daily flows sample experienced outflows of $2.7 billion, the same magnitude as September 17, 2008 during the week of the Lehman Brothers bankruptcy," IIF said.

The main reason, according to the group, was the turmoil in China, where the Shanghai stock exchange on that day suffered a 8.5 percent plunge.

"Weak commodity prices and ties to China have weighed on key EM equity markets, with markets already edgy in anticipation of Fed liftoff," the IIF said, referring to expectations of an interest rate increase by the US Federal Reserve.

"The announcement of a new more market-oriented exchange rate regime and an associated RMB (renminbi) devaluation on August 11 increased concerns about the Chinese economy and triggered broad-based market volatility, EM currency depreciation and widespread selling of EM equities," it added.