EM portfolio flows: bull market back again? Portfolio flows to emerging markets rebounded in November after several months of weakness, according to the latest EM Portfolio Flows Tracker from the Institute of International Finance. Flows for the month were estimated at $25.5bn, consisting of $8.8bn to bonds and $16.7bn to equities, the IIF said. Click to enlarge "After several months of caution, EM investor sentiment appears to have revived," said Charles Collyns, the IIF's chief economist. He says the pickup could mark a return to the buoyant conditions seen in the middle of the year. However: "At the same time, we remain concerned that markets may be underestimating the pace of Fed exit, which could result in another pullback once the Fed provides greater clarity about the likely trajectory of policy rates." Flows to Latin America were especially strong, at $12.6bn, driven by Mexico. Flows to emerging Asia were also strong at $6.3bn after much weaker flows in October. Flows to emerging Europe were subdued and Africa and the Middle East suffered another month of outflows. Robin Koepke and Saacha Mohammed, authors of the report, noted that there were conflicting signals about the outlook for flows. Spreads on US high-yield corporate bonds have climbed further this month (see left hand side of chart below) while, in contrast, market pricing for the federal funds rate at the end of 2015 remains close to the average for October of about 0.5 per cent, but lower than seen earlier in the year (right hand side). Koepke and Mohammed noted: Our own expectation is for a somewhat faster tightening, both in terms of the first rate hike and especially in terms of the pace of subsequent rate hikes. This is because we are concerned that the U.S. labor market is somewhat tighter and the Fed's reaction function is somewhat less dovish than seems to be implied by current market pricing. This scenario represents a significant risk to the outlook for EM portfolio inflows.