Which is usually steadier?

Foreign direct investment in factories

Rising US interest rates can cause...

Money to leave emerging markets

A sell-off after the Fed hinted it would slow its bond buying (QE)

Huge sums move between countries every day, hunting for good returns. These capital flows can lift a currency, or sink it in days.
When a country's bonds pay well and its growth looks solid, foreign investors buy its bonds and stocks. To do that, they first buy its currency.
When they get nervous, they sell and swap back into dollars. Outflows mean selling the local currency, so it weakens.
Real example: in May 2013 the Fed only hinted it would slow its bond buying. Money rushed out of emerging markets, the Indian rupee hit a record low, and currencies from Indonesia to Brazil and Turkey fell. Traders called it the “taper tantrum”.
Not all money is equally jumpy. Foreign direct investment builds factories, mines and data centres and stays for years. Portfolio money can leave with one click.
Common mistake
Mistake: cheering every wave of foreign money. “Hot money” that floods in fast can rush out just as fast. Countries with big reserves and steady policy cope best.
Key takeaway
Money flows in: currency up. Money flows out: currency down. US interest rates often decide the direction.

Capital outflows usually make the local currency... WeakerLeaving investors sell the local currency to buy dollars or other currencies.
Which is usually steadier? Foreign direct investment in factoriesA factory can't be sold with one click, so that money tends to stay for years.
Rising US interest rates can cause... Money to leave emerging marketsHigher returns on safe US assets pull money home.
What was the 2013 “taper tantrum”? A sell-off after the Fed hinted it would slow its bond buying (QE)Just a hint of less Fed support was enough to send hot money running.