Money Flows to Emerging Markets

We often say that the global growth story is perhaps the planet’s most potent economic driver, and this opportunity is not lost on investors.

The Financial Times recently published an interactive map showing the growth of net private capital inflows into the key emerging market regions going back to the mid-1990s and through booms, busts and various regional fiscal and monetary crises.

Back in 1995, the combined net capital inflows to Latin America, Eastern Europe, Africa/Middle East and Asia ex-Japan was roughly $250 billion. A decade later, the same net inflow went into Eastern Europe alone and the total global figure topped $600 billion.

Emerging Market Private Capital Inflows

The peak is pictured above – in 2007, net private capital inflow totaled more than $1.2 trillion. Then came the Great Recession – in 2008, the number was less than half, with Asia falling from $413 billion to $107 billion. The net inflows are estimated at some $700 billion this year and about $750 billion in 2011.

Overall takeaway – global emerging markets are now well-established as an important asset class in the eyes of the investment community as the financial systems in these countries have matured and government policy changes have removed many obstacles that had impeded foreign investors.

And given GDP growth projections that far surpass those of the developed economies, the appeal of emerging markets is not likely to change any time soon.