Capital flows

Capital flows explained: how cross border investment is measured, what drives emerging market flows, and Jonathan Fortun’s research on currencies and financing conditions.

Capital flows connect investment decisions in one economy with financing conditions in another. This page brings together an introduction to their measurement and Jonathan Fortun’s research on emerging markets, exchange rates and the transmission of global financial conditions. The publication archive below links to the original work and distinguishes authored research from media commentary.

What are capital flows?

Capital flows are cross border financial transactions: for example, an investor buying another country’s bonds, a company financing an overseas operation or a bank making a foreign loan. The category matters. Direct investment, portfolio investment and bank related flows describe different relationships and can behave differently. A portfolio flow estimate is therefore not a measure of every form of international financing.

A useful first question is whose activity a number describes. Nonresident purchases of domestic assets and residents’ purchases of foreign assets are different sides of the external financial relationship. Even a series called “inflows” may already subtract sales from purchases within its category. Read its definition before comparing it with a net flow total.

Flows, stocks and country coverage

A flow covers a period; a stock describes a position at a date. A change in the value of foreign holdings can reflect prices and exchange rates as well as transactions. It should not automatically be interpreted as new money entering or leaving a country.

Country definitions also matter. Residence locates an entity in an economy; nationality can group it with the country of its controlling parent. The BIS explanation of residence and nationality shows why the two perspectives answer different questions. Before comparing regional totals, check which countries, investors and instruments are included.

What drives emerging market capital flows?

Analysis often separates global “push” factors, such as international financial conditions, from domestic “pull” factors, such as an economy’s outlook and institutions. Their relative importance can change across periods and types of investment. The IMF literature survey on capital flow determinants provides a starting point for this distinction.

For a particular episode, the analytical task is to connect the financing decision to the receiving economy. Is a change broad across markets or concentrated in a few countries? Does it concern equity or debt? Does the adjustment appear in an exchange rate, a borrowing cost or the quantity of financing available? These questions are more informative than treating every rise in inflows as the same economic event.

How to read timely flow estimates

High frequency indicators can help track developments before full balance of payments statistics arrive. Their coverage and construction differ, so they are not interchangeable. The IMF guide to capital flow data discusses these measurement differences and the use of timely portfolio flow proxies.

For any release, identify its observation period, publication date, country universe and revision policy. Compare like with like: a monthly estimate with another monthly estimate, and the same investment category with itself. When a source revises history, retain the distinction between the original reading and the latest estimate. A timely signal can be useful without being a complete picture.

Sovereign issuance is a different measure

Bond issuance describes securities being created; investor flow measures describe investment transactions. Gross issuance can include refinancing. Net issuance deducts redemptions, as set out in the BIS securities glossary. Neither number alone establishes who bought the bonds or the economy’s total net capital inflow.

Research, attribution and further reading

Jonathan Fortun’s work connects portfolio allocation with exchange rates, external balances and financing conditions. Follow the dated publications and commentary below for the argument and evidence behind a specific episode. Institutional research retains its publisher and coauthors; a journalist quoting Jonathan remains the author of that reporting.

The Japan research theme examines another perspective on international capital allocation. The Bolivia economy theme follows monetary and foreign exchange constraints in a receiving economy. The professional biography connects these interests, and the press kit provides attribution for interviews and introductions. This reference page does not redistribute the IIF’s underlying datasets.

Research and public conversation

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295 results

February 2, 2021IIF

Capital Flows Tracker: Flows Remain Strong (January 2021)

Debt securities dominated portfolio inflows into emerging markets in January 2021. Jonathan Fortun reports $44.2 billion entering debt and $9.4 billion entering equities, with Chinese stocks receiving $6.2 billion of the equity flows. The composition shows how heavily the continued recovery depended on bond investment.

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January 11, 2021

Yicai / 第一财经 Quoted expert Original title: 涌入资金创7年最高!投资者看好新兴市场2021年表现

涌入资金创7年最高!投资者看好新兴市场2021年表现

Fortun describes the final quarter of 2020 as the strongest period for emerging-market inflows since early 2013, in an article examining the return of investors and demand for local-currency debt.

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January 7, 2021

Yicai (Shanghai Securities News) Quoted expert Original title: 2020年,新兴市场国家获3130亿美元资金流入

2020年,新兴市场国家获3130亿美元资金流入

Fortun explains the resilience of emerging-market inflows during 2020 through strong demand for Chinese bonds and the recovery of other asset classes.

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January 5, 2021IIF

Capital Flows Tracker: Back From the Brink (December 2020)

A strong December rebound brought emerging market portfolio inflows to $313 billion for 2020. Jonathan Fortun reports $45.9 billion entering during the final month, comprising $29.3 billion in equities and $16.6 billion in debt. Chinese equities accounted for $13.2 billion of December’s inflows into stocks.

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December 28, 2020

O POVO (Estadão/Broadcast) Quoted expert Original title: Capital externo deve retornar em 2021

Capital externo deve retornar em 2021

Fortun discusses the expected return of capital to emerging markets in 2021, with Asia leading the recovery, in Brazilian reporting on how fiscal policy and reforms could affect flows to Brazil.

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