Capital flows into EM bonds and equities have fallen to their lowest in six months as investors have pared back expectations for Fed interest rate cuts. However, even with these moves, we remain more dovish than the market on the Fed and so believe there is some scope for capital flows to pick up later this year. And, in any case, the improvement in most EMs’ external positions over the past couple of years has made capital outflows less of an economic risk.
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