IMF says benchmark-driven investment in EM is worrying: The IMF has warned that an increase in “passive” investment in emerging markets could have a negative impact if another wave of mass outflows (like last year’s EM Zombie Apocalypse) hits, the Financial Times reports. “A combination of heightened sensitivity to external factors and growing assets under management means that outflows from benchmark-driven funds in response to a given shock can be much greater now than only a few years ago,” the IMF said. Over the past 10 years, investors have been inclined to base their decisions on EM bond indices, which have quadrupled to USD 800 bn, the FT noted.

The IMF warned that benchmark-driven investments are more vulnerable to global changes, like decisions made by the US Federal Reserve or the exchange rate. “A larger share of benchmark-driven investments in total portfolio flows could increase the risk of excessive inflows or outflows unrelated to countries’ economic fundamentals and could, in some cases, have destabilising effects,” the fund said.