The institute expected that Latin America, in general, would be one of the preferred destinations for foreign investments in emerging markets, despite the negative signs coming from Argentina, and expressed doubts about the withdrawal of funds from China, Turkey and other countries.
The institute expects the US economy to grow by 1 percent in 2023, which, combined with expectations that inflation will reach a moderate level of 3.1 percent annually at the end of the year, will provide a favorable environment for investment abroad in developing countries.
It is expected, according to the Institute’s estimates, that the flow of foreign capital to emerging markets will increase and that capital flows abroad will decline this year, which will result in a decline in net capital flows from emerging markets abroad to about $173 billion, compared to $522 billion in 2022.
Excluding China, net capital inflows are estimated at around $80 billion this year, after announcing $221 billion outflows in 2022.
Usually, raising interest rates and tightening monetary policy in developed markets, of which the United States is the most important, does not bode well for emerging markets, as investors prefer attractive and guaranteed returns in times of uncertainty, which leads them to withdraw their money from less developed countries.
Investors began venturing into new businesses after China, their recent favorite, was hit by a sharp slowdown in economic growth as well as by perceived political risks that made Russia uninvestable after it invaded Ukraine early last year.
The Institute of International Finance said that net foreign direct investment in China for the whole of 2023 is expected to be the lowest in 18 years.
As for Africa, the institute expects that Egypt will have to offer significant discounts in light of its efforts to sell state-owned assets as part of the structural adjustment it needs.
The institute stated that the key to this amendment is “the adoption of a flexible exchange rate system, which (the central bank) promoted a lot, but it was cautious about it.”
In Saudi Arabia, foreign capital inflows are expected to quadruple year-on-year to $44 billion this year with an increase in foreign currency bond issuances, as well as an increase in equities.
The institute added that “preliminary data for the first five months of this year show that foreign currency bond issuances have already exceeded the volume of similar issuances for the whole of last year.”
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