Drivers of Portfolio Equity Flows to Emerging Market Countries

Abstract

In recent decades, international diversification has increased the portfolio investment flows to Emerging Market Countries (EMCs). This paper examines why investors diversify in EMCs and what drivers of portfolio investment flow. This paper employed descriptive analysis with a literature review approach. The finding is that international investors are interested because EMCs offer higher returns than countries of origin, with less risk. Drivers of portfolio investment flow to EMCs are classified into push factors, namely global conditions that encourage investment EMCs and pull factors that are domestic conditions in EMCs that are attractive to investors. The main driver that has the most influence on the portfolio equity flows to developing countries is the Fed Funds rates, which are part of push factors.

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