Accommodative central bank policies have led to improved risk appetite that has pushed capital inflows into emerging market assets to their highest levels in 21 months according to the Institute of International Finance (IIF).

March saw emerging markets attract $36.8 billion of foreign investment capital with Asian assets accounting for the lion’s share.

“This is great news for emerging markets and also serves to prove our earlier assertions correct,” said Erik Larssen, chief markets strategist at Nihon International Corporate Services. “We’ve been saying for some time now that easier monetary policy at the major central banks and attractive valuations would eventually see investors return to EM equities and bonds looking for better returns.”

The Federal Reserve has scaled back the projected number of interest rate hikes it expects to make in 2016 from 3 or 4 to just two as it takes a more cautious approach towards tightening policy. Worsening economic data from the world’s largest economy and worries over China’s slowdown have seen Fed policymakers and their counterparts at central banks in Europe, Japan and China becoming more accommodative.

“There’s definitely been some bargain-hunting in emerging market equities. Chinese stocks, for example, took quite a drubbing but investors saw enough compelling value on offer to re-enter the market,” said Larssen.

Asian equities accounted for $20.6 bn of the $36.8bn inflows while Latin America attracted $13.4bn. Despite the good news for Asian markets, however, Nihon International says that there is potential for a pullback if investors decide to take comments calling for higher US interest rates from a number of Federal Reserve officials at anything more than face value.

About Nihon International Corporate Services:
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