Emerging Markets Outflow Being Driven by Short Term Investors: Citi

It has been a painful ride in emerging markets this year, with inflation-related protests in Brazil, political unrest in Turkey and a slowing economy in China. The Federal Reserve's suggestions that it may soon taper the liquidity fueling investors' appetite for emerging markets didn't help either.

The road ahead will likely be bumpy, as countries like China face structural challenges in transforming from an investment-led economy to one driven by consumption, and others, like Brazil and India, struggle to enact structural reforms. An improving U.S. economy and stronger dollar likely mean emerging markets will trail the U.S. Outflows could weaken some currencies further, sparking inflation in countries with large current-account deficits such as Turkey and India.

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