Emerging market countries are facing increasing pressure on capital outflows amid tighter liquidity in financial markets, geopolitical tensions and an increased risk of global recession.

According to JPMorgan Chase & Co, investors have withdrawn nearly $50 billion from emerging market bond funds so far this year, and the outflow of emerging market debt-based funds has reached its highest level since 2005. The consequence of a large outflow of capital is the "sadness and gloom" of the bond market. JPMorgan Chase & Co EMBI Global Diversified, the dollar-denominated emerging market sovereign bond benchmark index, has fallen 18.6 per cent year-to-date.

Under the influence of the epidemic, a large number of emerging economies are already "financially tight." As the Fed gradually began the process of normalizing monetary policy, the stronger dollar led to the withdrawal of money from a large number of emerging market countries with weak economic fundamentals. Recently, as fears of a global recession have grown, investors have turned to safe-haven assets, adding to the woes of relatively high-risk emerging market countries.

Marco Ruijer, emerging markets portfolio manager at William Blair, an investment bank, said:

Asset classes underperformed even before the Fed started to raise interest rates. The market began to worry a little about the recession, which led to another sell-off. "

In addition, for countries that are highly dependent on imports, the high commodity and food prices in the context of the conflict between Russia and Ukraine also make them "complain incessantly." Under the influence of multiple factors, Ruijer said emerging markets had suffered a "perfect storm". "it's quite dramatic," Ruijer said.

Recently, Sri Lanka, which has suffered a serious economic crisis, has attracted worldwide attention. In fact, Wall Street mentioned that as early as the beginning of this year, Vontobel Asset Management and other hedge funds already regarded this small South Asian country with a large foreign debt and a single and fragile economic structure as a "predator." The article mentioned that for emerging market economies, the financial turmoil is mainly triggered by external factors such as interest rate hikes by the Federal Reserve, and risk communication channels are mainly cross-border linkage factors. risk amplification channels are mainly political, economic structure and other internal factors.

While there are opportunities in emerging markets, the bleak global economic outlook, high commodity prices and recession expectations mean investors will keep pressing the "sell" button, Ruijer added.

Cristian Maggio, head of emerging market strategy at TD Securities, also said:

"these assets tend to be positively correlated with the economic cycle. Investors are afraid to invest heavily in emerging markets because of deteriorating growth prospects.