LONDON, Oct 2 (Reuters) - Private capital flows to emerging markets in 2014 are likely to amount to $1.162 trillion, financial industry body the Institute of International Finance said on Thursday, increasing its previous forecast by $130 billion.
The Washington-based IIF said however that portfolio inflows into emerging economies were on the decline after a March-July surge, and that a collapse of flows to Russia would keep total investment inflow volumes below 2013 levels.
Last year, total flows amounted to $1.241 trillion, the report said, while 2015 flows are predicted at $1.158 trillion.
“Divergent paths for G3 monetary policies are adding to the volatility of capital flows to emerging markets,” Charles Collyns, chief economist for the IIF, said in a report.
He noted that the U.S. Federal Reserve had so far been slow to exit money-printing policies in place since the financial crisis, while the European and Japanese central banks have been providing stimulus, supporting capital flows.
“Going forward, however, there is an increased risk of abrupt shifts in expectations about G3 monetary policy paths, which could spark a rise in risk aversion and a retrenchment of emerging market capital flows,” Collyns said.
He was referring to Fed plans to end bond purchases this month and to start raising interest rates in mid-2015. The European Central Bank on the other hand has laid out plans to buy rebundled packets of debt to shore up the euro zone economy.
The IIF noted that portfolio, or stock and bond, investors had become more cautious in recent months, with inflows of $12 billion and $18 billion in August and September respectively. That was well below average monthly flows of $37 billion between May and July.
Emerging Asia’s share of inflows this year was estimated to reach 60 percent while emerging Europe is bearing the brunt of the decline, seeing a 60 percent drop from 2013 levels. That reflected problems in Russia which has been slapped with Western sanctions in retaliation for its role in the Ukraine crisis.
Reporting by Sujata Rao; Editing by Robin Pomeroy