Emerging markets face $26 billion exodus as Federal Reserve shifts stance

The flight of capital hit both debt and equity markets, with $7 billion pulled from fixed-income assets alone. This represents the first net outflow in the sector since March, when regional instability in the Middle East first disrupted global sentiment. South Korean equities bore the brunt of the volatility, suffering $19.2 billion in foreign selling as investors moved to shed riskier holdings.

Analysts at the Institute of International Finance noted that pressure intensified following the mid-month FOMC decision, which caused hard currency bond funds to bleed assets and widened dollar credit spreads. With the Bank of Japan maintaining its highest policy rate in nearly three decades and advanced economies tightening monetary policy, the environment for emerging market carry trades has become increasingly hostile heading into the final quarter of the year.