Plans by the US Federal Reserve to wind down its monetary stimulus and slower growth prospects in emerging markets will lead to a reduction in the inflow of private capital to these countries, the Institute of International Finance said Wednesday.
"Investors have become increasingly concerned about the market impact of the Fed's exit from accommodative monetary conditions, particularly against the backdrop of slower growth in key emerging economies," IIF Executive Managing Director Hung Tran said in a statement.
The IIF, which represents the world's top banks, said the net inflow of private capital into emerging markets was likely to drop by $36 billion to $1.145 trillion in 2013, and then by another $33 billion to $1.112 trillion in 2014.
The Fed's asset purchase programme, known as quantitative easing, has freed up funds that US investors have often chosen to invest abroad in search of higher returns, boosting markets worldwide.
Signals by the Fed that it may wind down the asset purchases by the middle of next year have sent stocks plunging across the globe and yields on sovereigns bonds -- the cost of government borrowing -- climbing.
Tran warned the rise in global borrowing rates would pose a special challenge to emerging markets, especially in countries where there has been strong credit growth.
Emerging market equities are down some 15 percent from a peak one month ago, compared to 10 percent drop for the world's major exchanges, which the IIF pointed to as a sign of greater wariness among investors for taking on risk.
Emerging markets which depend on foreign capital to finance their growth will be particularly exposed to the changes.
The IIF pointed to substantial risks in Turkey given its dependence on short-term foreign capital inflows to finance its large current account deficit, as well for Hungary given large external debt repayments and heavy reliance on foreign purchasers of its bonds.
Others, such as China and Russia, are net exporters of capital and should be less affected, the IIF said.