Emerging market inflows down $4 billion from July to lowest since January - IIF

By Dion Rabouin

NEW YORK (Reuters) - Foreign investors cut capital flows to emerging market debt and equities in August, reducing inflows to $15.8 billion as investor caution and profit-taking have slowed flows, a survey from the Institute of International Finance revealed on Tuesday.

The reading marked the lowest level of inflows since January's $13.2 billion reading.

Emerging market stocks showed their first negative print since November and EM debt saw $16.5 billion of inflows.

Net capital flows to China, the world's second-largest economy and largest emerging market, were negative with some $23 billion in outflows. China is considered an emerging market because of its exceptional growth rate.

Still, August marked the ninth consecutive month of positive inflows for the asset class. Through the first eight months of 2017, combined equity and debt portfolio inflows to emerging markets have totaled just over $200 billion, nearly double the pace of the previous two years, IIF said.

That pace remains behind the 2010-2014 average of $230 billion of inflows. Analysts also cautioned that flows tend to slow significantly in the later months of the year.

"We could see another slow end to the year if markets begin to take the (Federal Reserve) more seriously on rate hikes and balance sheet unwind," IIF said in a statement.

The group also pointed out that the last four months or one-third of the year have accounted for only 13 percent of annual flows over the past three years.

Late last month IIF warned that investor caution and profit-taking may be starting to creep into emerging markets following their meteoric rally so far this year.

A combination of increasing global growth, low interest rates and a weak dollar have fuelled the surge in emerging economy currencies and assets, but the group's capital flow tracker pointed to possible signs of a pause.

"While flows to emerging markets have been resilient over the past few weeks, our investor sentiment metrics suggest a more cautious tone," a previous IIF report said.

"Our EM risk appetite metric suggests that investors continue to take on credit risk in search for yield, but have turned slightly negative on EM currency risk despite recent U.S. dollar weakness."

EM Asia saw $6.1 billion in combined equity and debt inflows, led again by inflows to Indian debt. Latin America was close behind with $5.9 billion - a four month high - led by inflows to Brazil equities.

(Reporting by Dion Rabouin; Additional reporting by Marc Jones; Editing by Chizu Nomiyama)