Emerging markets are winning the dash for cash after Brexit vote

Jake Cordell
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The US dollar has strengthened since the UK's vote for Brexit
The US dollar has strengthened since the UK's vote for Brexit (Source: Getty)

Emerging markets are one of the big winners from the UK’s vote to leave the EU as economies have benefitted from an influx of foreign capital.

With bond yields crashing in the advanced world following the shock vote for Brexit on 23 June, Standard and Poor’s (S&P) said “yield-hungry investors” had flocked to more exotic assets.

The ratings agency found that in the week to 15 July inflows into emerging market portfolios were are their highest level in nearly three years, since the Us Federal Reserve delayed its decision to taper its quantitative easing programme in September 2013.

“While emerging market currencies and equities suffered losses in the immediate aftermath of the UK referendum, foreign capital quickly returned,” S&P said.

However, not all up-and-coming economies were winners. Eastern Europe, for instance, is seen as too connected to the events in Europe to benefit from anybody looking for a new home for their cash.

“Investors seem to be concerned about Brexit’s possible second-round effects on Eurozone growth and therefore on central and eastern European economies”.

S&P added the boom in income may prove to be short-lived, with tentative signs influx levels were already beginning to peter out. However, a fresh bout of looser monetary policy in the UK, the Eurozone and Japan could push yields even lower in advanced economies and sustain the momentum.

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