EPFR Global-tracked Emerging Markets Equity Funds added another $1.1 billion to their year-to-date inflow total with nearly all of that fresh money going to diversified Global Emerging Markets (GEM) Equity Funds. Among the major regional groups, Latin America Equity Funds recorded modest inflows while EMEA Equity Funds posted outflows for the 11th straight week and Asia ex-Japan Equity Funds for the third week running.
One of the headwinds facing Asia ex-Japan Equity Funds is the enduring skepticism investors — especially foreign ones — are showing towards China’s economic story. On the face of it, that story remains a strong one, with GDP growth still north of 6 percent, consumption and services playing a bigger role in the domestic economy and exports growing in recent months. But China Equity Funds have experienced net redemptions for three straight weeks and 18 of the 23 weeks year-to-date. Investors are fretting about the intersection of a heated Chinese real estate market, efforts by the authorities to tighten their grip on the so-called shadow banking sector and the broader issues with capital allocation reflected in Moody’s recent ratings downgrade.
Asia ex-Japan Equity Fund managers have been more bullish that investors about China for some time. Still, allocations to this market have leveled off, with managers shifting their attention to South Korea. The average allocation for that market, which recently elected a new, reformist president, is currently at its highest level since the third quarter of 2014. Korea Equity Funds, meanwhile, posted consecutive weekly inflows for the first time since late December as South Korean President Moon Jae-in’s administration works on an $10 billion supplemental budget to boost employment and domestic consumption.
Among the EMEA Country Fund groups Turkey Equity Funds snapped a five-week run of outflows. The Turkish economy has been under pressure in recent months as investors balked at the expanded powers that President Recep Erdogan acquired through a constitutional referendum and a domestic inflation rate that peaked north of 11 percent. But lower oil prices, a recovering currency and broad investor appetite for emerging markets assets are providing support for the Turkish economy.
Cameron Brandt is Director of Research for EPFR Global, an Informa Financial Intelligence company.