Emerging Markets Attract Second-Largest Monthly Inflows in Four Years

Emerging market assets drew significant investor interest in July, recording their second-largest monthly net inflow in four years, according to data from the Institute of International Finance (IIF). Total inflows reached about $55.5 billion, well above the $42.8 billion seen in June and the $47.6 billion in July 2024. The strongest inflow during this period was in September of a previous year.

Chinese debt markets were the primary beneficiary, receiving around $30.8 billion, the highest since March. Non-Chinese emerging market equities also saw robust demand, pulling in roughly $10 billion—their largest inflow since December 2023.

Strong market performance underpinned the flows. The MSCI emerging markets equity index has climbed 17% so far in 2025, outpacing the 9.5% rise in the S&P 500. Dollar-denominated EM debt gained 8%, while local-currency bonds advanced over 11% by the end of July.

IIF senior economist Jonathan Fortun highlighted investor appetite for high-yielding currencies in countries such as Brazil, Mexico, and South Africa, where attractive interest rate differentials and relatively stable currencies have supported returns. He also noted increased participation in local bond ETFs, as global investors grow more comfortable with currency exposure in the current environment.

Despite a mild rebound in the U.S. dollar last month, the overall EM currency index remains up nearly 6% in 2025. Softer U.S. labor data has reinforced expectations for multiple Federal Reserve rate cuts before the end of the year, further supporting demand for emerging market assets.