Uncertainty weighs on investment flows to frontier and emerging markets

China’s abandonment of its so-called Zero-Covid policy prompted strong inflows into emerging markets, but as renewed questions arise over the prospects for interest-rate cuts in developed markets investors are becoming increasingly picky about which markets they are prepared to put money into.

“Until markets are more certain about just how calm the developed market rates environment is we probably will not see sustained flows across the board into all emerging and frontier markets,” Razia Khan, chief economist for Africa and the Middle East at Standard Chartered bank, said in this week’s FMN podcast.

“Early this year, China was expected to recover and market sentiment had focused very much on how quickly the Fed would be able to start cutting interest rates. Everything was in place for more risk on behavior,” she says. “But we’ve seen a tightening of conditions [and] we know this will bring about new concerns around debt sustainability,” she added.

The good news? “Despite having to cope with myriad external shocks, there is still a growth dynamic in Africa that is surprising positively. And I think that’s probably a good point for investors to focus on investors who are really looking to the long term.”

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