Investors went on January emerging market buying spree, report shows

LONDON – Investors piled into emerging market countries’ debt to the tune of USD 45 billion and bought up USD 2 billion of Chinese stocks in January, a closely followed report from the Institute of International Finance showed on Tuesday.

The trade body cited how markets were being buffeted by the plans of returning US President Donald Trump to reshape the global order, as well as the continuing evolution of artificial intelligence.

Emerging market countries saw a USD 35.4 billion ‘net inflow’ of international money in January although there was sharp divergence between debt and stocks, the report showed.

Debt flows surged to USD 45 billion, including USD 8.1 billion into China where interest rates have been falling due to its ongoing economic strains.

Equities struggled overall in emerging markets, suffering USD 11.5 billion of outflows not including China, which enjoyed USD 2 billion of inflows.

The divergence between debt inflows and equity outflows underscores “the continued investor preference for the relative stability of fixed-income instruments amid persistent geopolitical uncertainty, US monetary policy risks, and global economic headwinds,” the IIF said.

The data covered January but MSCI’s main emerging market stocks index showed a sizeable rally took off around the middle of the month.

Since then, that index has climbed nearly 10% and the emergence of the DeepSeek AI tool has helped top Chinese tech stocks like Baidu, Alibaba, and Tencent surge 30%, 62%, and 40% respectively.

The selling elsewhere in emerging markets was “exacerbated” by a contrasting selloff in US ‘Big Tech,’ the IIF estimated.

The correlation between emerging market credit spreads and US tech equities has tightened significantly in recent years, with a 91.2% correlation between broad EM credit spreads and the Nasdaq 100.

The report also pointed blame at the “renewed protectionist measures from the Trump administration, particularly the imposition of tariffs on a range of sectors.”

India has been most impacted, with foreign investors pulling more than USD 20 billion from its stocks since October, when Trump’s election win started to look more likely. South Korea and Taiwan stocks also saw outflows exceeding USD 1 billion each.

Emerging market debt remained strong, however. January saw total debt inflows of USD 45 billion, with EM ex-China attracting USD 36.8 billion and China adding USD 8.1 billion.

The resilience of emerging market local currency debt was “particularly notable” the IIF said, citing continued foreign demand for bonds in Brazil, India, and Poland.

Emerging market central banks maintaining relatively high interest rates will make “EM debt an attractive carry trade” the IIF said, if US rates stay as high as expected.

(Reporting by Marc Jones; Editing by Bernadette Baum)