FILE PHOTO: Traders at the Philippine stock exchange in Manila's Makati financial district October 27, 2008. REUTERS/Cheryl Ravelo/File Photo

By Rodrigo Campos

NEW YORK (Reuters) -A pick-up in flows into stocks led the way as non-resident investors added $26.9 billion to their emerging markets' equities and debt portfolios in October, data from a banking trade group showed.

The inflow last month marks an uptick on the $21.1 billion in September and compares to a $5 billion net outflow in October 2024 according to the Institute of International Finance.

The overall $12.9 billion net inflow to emerging market stocks was the highest since July, and the $9.4 billion that went into equities outside China the strongest since December 2023.

"The most striking shift in October was the recovery of EM equity allocations," Jonathan Fortun, senior economist at the IIF wrote in the report, noting that regional breadth also improved, with developing economies in Asia, Latin America and Europe all enjoying stronger inflows.

"Still, behind the headline recovery, key fault lines remain visible," Fortun added.

The $14.4 billion inflows into emerging debt was the weakest since April. Net flows to China nearly canceled out in October with a $3.5 billion inflow to stocks more than offsetting a $3 billion outflow from debt, the data showed.

Sovereign issuance slowed in October after a very strong third quarter according to the report, with investment grade favored widely while the lower-rated issuers are mostly absent.

"Investor demand remains concentrated in credits with deep secondary markets, liquid benchmarks, and transparent macro frameworks," said Fortun.

"High nominal and real yields remain central to demand for EM debt, especially in local currency markets, where carry continues to accrue at a historically fast pace."

Overall flows picked up, fueled by expectations of a second-consecutive U.S. Federal Reserve rate cut late in October.

After cutting rates last month, the Fed cast doubts on further monetary policy easing this year, but another 25 basis point cut is priced in for the December - even if policy makers are divided on it.

All regions posted net inflows last month, with Asia leading handily with $16.5 billion. Europe, Latin America and Africa and the Middle east saw inflows between $3.8 billion and $3 billion.

(Reporting by Rodrigo Campos in New YorkEditing by Nick Zieminski)