Author: Gordon Platt

Total net private capital flows to emerging markets are forecast to decline to about $470 billion this year from $502 billion in 2006, in line with slowing world economic growth, according to the Washington, DC-based Institute of International Finance (IIF). Emerging market equity prices rose 29% in 2006, slightly below the 30% rise in 2005. After reaching an all-time high of $70 billion in 2006, emerging market portfolio equity investment is projected to decline to about $63 billion this year, the global association of financial institutions forecast. It said China had record equity inflows of $32 billion in 2006, but that inflows could fall to $18 billion in 2007 as the pace of fundraisings by Chinese companies slows.

Net direct investment could set a new high of $211 billion this year, the institute says, up from $185 billion in 2006. “Investors have been impressed by the further improvements that have been made in economic fundamentals in a number of emerging market economies,” says William Rhodes, first vice chairman of the IIF and chairman, president and CEO of Citibank. “But there are potential downside risks in emerging markets’ finance, which require more vigilant risk-management approaches by investors and sustained sound economic policies by emerging market governments,” he says.

Gordon Platt