Why China will be least hit by capital exodus from emerging markets

The COVID-19 shock has led to the largest capital outflow from emerging markets in history during the first quarter of the year. However, the Institute of International Finance predicts that the situation is unlikely to improve for the rest of the year. Elina Ribakova, Deputy Chief Economist at the Institute of International Finance, joined CNBC Africa to shed light on why emerging markets, including Africa, may not be the preferred investment destination amidst the current crisis. In the interview, Ribakova emphasized that the global public health crisis, unlike previous financial crises, is impacting all emerging markets, making the situation more challenging for these economies. While many emerging markets are expected to face difficulties attracting foreign investment, China stands out as the least affected within the group. Ribakova highlighted that China's progress in stabilizing its financial system and its proactive response to the pandemic have positioned it favorably to weather the storm. Additionally, China's early reopening and containment of the epidemic have instilled confidence in investors, leading to a return of capital flows. On the other hand, when discussing the outlook for South Africa, Ribakova acknowledged the country's historical challenges, including institutional deterioration over the past decade. South Africa currently faces significant fiscal instability, with debt levels rising and the deficit potentially reaching up to 10% of GDP. The country's limited fiscal resources entering the crisis exacerbate concerns as it needs to allocate substantial funds to healthcare and business support. Despite South Africa's Rand freely floating and minimal external vulnerabilities, the lack of fiscal space remains a critical issue. Ribakova also emphasized the importance of addressing income disparity in South Africa, particularly during a time when those in need may struggle to access necessary assistance. These economic challenges underscore the complexities faced by emerging markets, with China emerging as a beacon of stability amidst the storm.