Emerging market (EM) stocks and bonds attracted positive but relatively modest non-resident inflows in March that were driven by the increasingly dovish tone coming from the US Federal Reserve bank on future tightening of monetary policy, the Institute of International Finance (IIF) said in a release on April 1.

“After a strong performance in January and February (with inflows of $52.6bn and $31.2bn, respectively), we estimate that EM securities attracted $25.1bn of foreign capital in March,” IIF reports. “The most profound dovish shift from the Fed since 2016 and more constructive trade talks between China and the US were positive catalysts. However, many EM currencies have fallen sharply this year, failing to benefit from the more constructive backdrop. We believe weak capital flows to EM reflect the positioning overhang we have been writing about recently.”

Debt inflows to the region have been especially strong as investors go “risk on” again and the hunger for yield increases. That has opened the window for bond issues and several countries have already tapped the market. Amongst the most recent Russia got its biggest Eurobond issue in six years away at the end of March raising $3bn and €750mn. Russia’s Ministry of Finance has also held record-breaking local treasury bill auctions in recent weeks.

IIF reports that in general March saw $17.6bn in debt inflows to EMs, after a similar reading of $18.2bn in February.

“The level of debt flows was mainly explained by inflows to EM Asia and Latam ($10.0bn and $3.9bn, respectively). For equity flows, our headline tracker for March ended at $8.1bn. The reading for EM ex-China equity flows was $6.6bn, while China flows were $1.6bn,” IIF reports.

However, taking into account the broadest measure of capital flow, including things like bank loans and FDI, then while there was a net inflow in February to all EMs of about $2.4bn, IIF estimates there was a small outflow in January.

Problems in Russia and Turkey in particular pulled the overall number down and highlight the large differences in sentiment to the leading EM markets at the moment.

“Driving February’s result were positive flows of $14.7bn to China, after witnessing outflows for eight consecutive months. However, the overall picture was clouded by cumulative outflows from EM x/China of $12.2bn. In particular, after solid inflows in January, India (-$1.5bn) and Turkey (-$1.9bn) fell back into negative territory. Saudi Arabia and Russia continue to weigh on our tracker, posting outflows of $11.8bn and $7.1bn, respectively,” IIF concluded.

Ukraine is worth noting as it saw net capital inflows of $6.6bn in 2018, according to IIF, half of which was due to Eurobond issues. IIF forecast Ukraine will take in a net $5.8bn in capital this year. Russia in contrast saw a net outflow of capital of $75.8bn in 2018, according to IIF calculations, and will see another netflow of $55.1bn this year, IIF forecasts.