Global Data Pod: EM capital flows discontented we remain

Jul 29, 2025

Jahangir Aziz, Head of EM Economics at JPMorgan Research, dives into the sluggish capital flows into emerging markets. Aziz discusses how geopolitical factors and rising U.S. Treasury yields are reshaping investment dynamics. He highlights the waning influence of the dollar as a catalyst for inflows, while stressing the need for EMs to showcase their growth potential. The impact of China as both an attractor and substitute for broader capital flows is examined, alongside the need for stability in EMs to weather economic shocks.

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INSIGHT

Key Drivers of EM Capital Flows

The two dominant drivers of capital flows into emerging markets are growth differentials and the US dollar as a push factor.
Recently, US Treasury yields have become more influential than the dollar due to rising risk premiums.

INSIGHT

Changing Role of China in EM Flows

China has historically been the major attractor of capital flows into emerging markets.
Recently, China's role as an attractor weakened, and inflows into other emerging markets have not substituted Chinese capital flows.

INSIGHT

EM Shift Towards Fiscal Discipline

Emerging markets have lowered their reliance on foreign portfolio flows by focusing on fiscal discipline and deepening domestic markets.
This shift reduced their need for external capital and increased market stability.

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Jahangir Aziz and Katie Marney discuss sluggish EM capital flows against a backdrop of trade uncertainty, risks to global growth, elevated treasury yields, and a weaker dollar. EM capital flows have been languishing and shifting in composition since about 2015. Hopes that a weaker US dollar would break EM capital flows out its malaise have not been fulfilled. We explore our finding that dollar’s influence as a push factor for EM investment flows has been waning, while US Treasury yields matter more. EM also needs to offer a sufficient growth pick-up to pull in flows. We also discuss China’s role as an attractor or substitute for broader EM capital flows. Greater macro stability for many EMs have also necessitated lower capital flows and enabled EM to face three big economic and funding shocks over the last 5 years.

Speakers:

Katherine Marney, Emerging Markets Economic and Policy Research

Jahangir Aziz, Emerging Markets Economic and Policy Research

This podcast was recorded on July 29, 2025.

This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-5040188-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2025 JPMorgan Chase & Co. All rights reserved. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. It is strictly prohibited to use or share without prior written consent from J.P. Morgan any research material received from J.P. Morgan or an authorized third-party (“J.P. Morgan Data”) in any third-party artificial intelligence (“AI”) systems or models when such J.P. Morgan Data is accessible by a third-party. It is permissible to use J.P. Morgan Data for internal business purposes only in an AI system or model that protects the confidentiality of J.P. Morgan Data so as to prevent any and all access to or use of such J.P. Morgan Data by any third-party.