Private capital flows to emerging markets hit a record in 2005 as rich-country investors took advantage of the favourable global economic climate and historically low returns at home to allocate an increasing proportion of their portfolios to emerging market assets.
But the Institute of International Finance (IIF), the association of the world's largest banks and financial institutions, reiterated earlier warnings that persistent risks in the global economy "could trigger changes in investor sentiment".
Total net private capital flow to emerging market economies was $358bn (euro296bn, £203bn) in 2005, beating the previous record set in 1996 of $324bn, the IIF said.
It added that it expected slightly smaller capital flows of $320bn this year because many emerging economies had taken advantage of record low spreads on debt compared with US Treasuries to finance in advance debt that was coming due in 2006.
With many emerging economies awash with cash last year, governments also paid back $65bn to international financial institutions and bilateral creditors. The move to pay back debt was in stark contrast to the 1990s, when net official lending flows had been overwhelmingly from international and advanced-economy creditors to emerging markets.
But William Rhodes, senior vice-chairman of Citigroup, said: "Investors will need to be especially cautious in the period ahead and pay particular attention to economic fundamentals as the global liquidity environment changes and as we face the prospect of potentially higher interest rates."
Under syndication arrangement with FE