December 15, 2015 / 2:21 PM / 2 years ago

Emerging market FX reserves fall this year passes the $500 bln mark

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By Jamie McGeever and Sujata Rao

LONDON, Dec 15 (Reuters) - The world's biggest emerging markets have run down their foreign exchange reserves by more than half a trillion dollars this year, as policymakers seek to mitigate capital outflows stemming from the oil and commodity price slump.

Data compiled by Reuters show that central bank reserves in 15 of the largest emerging economies are down $514.1 billion from the end of last year, including $400 billion from China.

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Emerging markets are on course to record their first year of net capital outflows since 1988, according to the Institute of International Finance. It estimates a net outflow of $540 billion.

Renewed weakness in commodity and oil prices in recent weeks has revived investors' concerns over the economic and financial health of many of these countries, compounding the downward pressure on growth, their currencies and reserves.

"FX reserve depletion will continue as a theme broadly speaking, not only in China but outside China," said Nikolaos Panigirtzoglou, strategist at JP Morgan.

"The weaker renminbi has become the de facto benchmark for emerging market FX. There's only one way to go for EM currencies, and that's down."

The pressure is widespread across emerging markets, even if the root causes vary from country to country. Triggers range from economic and financial market concern in China, the oil price collapse in Saudi Arabia, and oil, political turmoil and economic sanctions in Russia.

Most emerging currencies have fallen against the dollar this year, with some, such as the Brazilian real, hitting record lows. That has forced many central banks to intervene in currency markets to stem the volatility.

China, which carried out a 2 percent mini-devaluation in August, has guided the yuan to 4-1/2 year lows and launched a new trade-weighted yuan FX index.

The IIF estimates that emerging market financial portfolio outflows, which comprise a large part of overall capital flows, amounted to $3.5 billion in November, the fourth monthly exodus out of five.

This year is shaping up to be the worst year of portfolio flows in the sector since 2008, it says.

Bank of America Merrill Lynch estimates that $70 billion has left EM equity funds so far this year and $24 billion has exited EM debt funds.

Reporting by Jamie McGeever and Sujata Rao; Editing by Catherine Evans

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