The combination of generally higher commodity prices and lower expectations for U.S. interest rate hikes this year continued to work their magic for EPFR Global-tracked Emerging Markets Equity Funds during the first week of February. Flows were positive for the fifth straight week, extending their longest such run since early 4Q16—despite further retail redemptions. Once again the diversified Global Emerging Markets (GEM Equity) Funds posted the biggest inflows in cash terms among the four major regional fund groups, but it was Latin America rather than EMEA Equity Funds that fared best as a percentage of AUM terms.
Latin America Equity Funds again benefited from an ongoing reassessment of the region’s commodities story and hopes that Brazil’s economy is on the rebound despite the country’s dysfunctional politics. At the country level the latest flows into Brazil Equity Funds were the largest since the third week of 2Q16. Interest rate cuts, a reformist government, and interest from foreign investors—both portfolio and direct—have bolstered Brazil’s currency and equity markets so far this year. Smaller regional markets are also benefiting from the improved outlook for commodities prices: Colombia Equity Funds took in fresh money for the fifth week running, with the latest inflows the biggest since mid-September.
Asia ex-Japan Equity Funds, meanwhile, posted outflows for the seventh straight week. With the Chinese New Year in full swing, flows to China, Greater China and Hong Kong Equity Funds were subdued. Allocations for China among the diversified Asia ex-Japan Equity Funds peaked in early 3Q15. Since then managers have rotated exposure to South Korea, Indonesia and Thailand while cutting Hong Kong’s weighting to a record low.
Among the EMEA Country Fund groups, only Russia Equity Funds attracted significant amounts of fresh money. South Africa Equity Funds did, however, post modest inflows for the fifth time in the past six weeks. A drop in the trade deficit, a reduction in political noise, the retaining (albeit narrowly) of the country’s investment grade rating, reasonable valuations outside the top tier stocks, and optimism about commodities prices have contributed to this recent investor support for South Africa.
Cameron Brandt is Research Director of EPFR Global, an Informa Business Intelligence company.