Capital outflows from emerging markets continued into the second quarter of 2015.  Once again the outflows mainly emanated from China and from CEE and Russia.  The flipside is growth Treasuries held in custody for foreign accounts is stuck at zero percent.  This is a manifestation of the slowing growth we’ve seen in EM, which has led to falling equity and sovereign bond prices.


However, as we discussed in our recent Thematic, Understanding Liquidity, capital outflows are a lagging indicator, and will not necessarily tell you when the tide has turned and growth and higher asset prices should return.  For this, we look to our VP EM Real M1 Index, which has turned up sharply, driven mainly by Chinese and Indian money growth.  This anticipates that growth in EM should turn back up over the next 6 months, which should also be positive for EM equities.