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Data: Institute of International Finance; Chart: Axios Visuals

Despite strong performances from both U.S. and Chinese stocks this year, emerging markets have not seen significant inflows in debt or equity. EM currencies, bonds and equity markets have also broadly lagged their U.S. counterparts.

Investors have been talking themselves hoarse about attractive EM valuations since late 2018 but haven't been buying. Typically, investors flock to EM in times of risk seeking, as they tend to rise more than mature markets like the U.S. or Europe.

What's happening: The cause appears to be the sell-off in August and September as Argentina and Turkey looked to be in danger of massive implosions, leading to broad selling of most EM assets.

  • Losses amounted to nearly $40 billion for investors who held Argentine assets and "most real money inflows were captive and unable to leave," says Elina Ribakova, deputy chief economist at the Institute of International Finance.
  • That's left investors largely unable to put fresh capital to work buying up EM assets this year.
  • Worse, Argentina and Turkey again are looking vulnerable.

Why it matters: "The positioning overhang means no smooth sailing for emerging markets, even with a dovish Fed shift," Ribakova tells Axios. "Asset managers already own lot of 'problematic' emerging market assets ... In this environment it is hard for EM to rally."

Go deeper: Emerging markets' dollar debt threatens global growth

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