Informa Intelligence
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FUND FLOWS: Favoritism Persists for Emerging Market Equities

The fund saw inflows for the 20th straight week.

EPFR-tracked Emerging Markets Equity Funds chalked up a 20th consecutive weekly inflow going into August, as investors discounted earlier concerns about the pace of U.S. monetary tightening and penciled an improving global economy into their forecasts. EM Dividend Equity Funds saw an eight-week run of outflows come to an end and, in a departure from the usual pattern this year, the bulk of the week’s inflows went to Asia ex-Japan Equity Funds rather than the diversified Global Emerging Markets (GEM) Equity Funds.

Underpinning the biggest weekly inflow recorded by Asia ex-Japan Equity Funds since early in the fall of 2015, when Chinese authorities were taking extraordinary measures to stabilize that country’s equity markets, was the $1.2 billion absorbed by Korea Equity Funds. This record-setting total was driven by domestic institutional investors, who shrugged off the latest missile test by North Korea and–at least initially–the new administration’s proposed tax hikes and measures to curb property speculation.

 

Among Country Fund groups dedicated to small emerging-Asian markets, Philippines and Vietnam Equity Funds recorded inflows for the fourth and eighth consecutive weeks, respectively, while Pakistan Equity Funds posted inflows for only the second time in the past seven weeks. In the case of Pakistan, its promotion from frontier to emerging-market status has seen its Frontier Markets Equity Fund allocation plummet while its average GEM Equity Fund weighting is at its highest level since late 2000.

 

The shift in Pakistan’s status has opened the door for Argentina and its reform story: the average Frontier Markets Equity Fund allocation to Argentina is now at a more than two-year high. Investor enthusiasm for that reform story has, however, faded in recent weeks. Having recorded inflows in 18 of the 26 weeks during the second quarter, Argentina Equity Funds posted a record-setting outflow in late July and extended their longest run of outflows since early in the first quarter coming into August.

EMEA Equity Funds continue to see money flow out. But the latest redemptions were the smallest since the current run of outflows began in late March. With oil prices climbing during the final week of July, Russia Equity Funds snapped an eight-week redemption streak despite the latest U.S. push for sanctions.

Cameron Brandt is director of research for EPFR Global, an Informa Financial Intelligence company.

TAGS: Mutual Funds
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