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FUND FLOWS: Investor Sentiment Turns on Emerging Markets

Emerging Markets Equity Funds recorded their biggest weekly outflow in over eight months with all four of the major regional groups experiencing net redemptions.

Investor sentiment towards emerging markets equity, which held firm for several months in the face of rising U.S. interest rates, trade tensions and a crowded electoral calendar, cracked in early May.

EPFR-tracked Emerging Markets Equity Funds recorded their biggest weekly outflow in over eight months with all four of the major regional groups experiencing net redemptions. Retail investors did, however, commit modest amounts of fresh money for the second straight week.

Latin America Equity Funds posted collective outflows for the third straight week as Argentina, a market whose allocation among Frontier Equity Markets more than doubled between 3Q15 and 4Q17 thanks to its reform story, saw its currency plunge and foreign capital head for the exits. At the country level, however, Brazil Equity Funds snapped a six-week outflow streak and Mexico Equity Funds attracted fresh money for the 13th time in the past 16 weeks despite fears that both of the region's largest economies could end 2018 with populist presidents.

The rising oil prices that have bolstered the short-term investment case of Mexico are also triggering reassessments of several major EMEA markets, which range from heavy oil importers such as South Africa, Turkey and Poland to major producers such as Saudi Arabia and Russia.

Saudi Arabia Equity Funds did take in fresh money for the eighth week in a row. But investors in the EMEA region are increasingly sensitive to political and geopolitical risk. Higher oil prices, for instance, have not stopped investors from pulling money out of Russia Equity Funds for three straight weeks—with the latest redemptions the biggest since late 2Q17—as the increasingly authoritarian Vladimir Putin started his fourth term as Russia’s president.

Among Asia ex-Japan Country Fund groups, China Equity Funds extended their longest inflow streak since 1Q14. The latest inflow was, however, the smallest since late March, with some investors pulling back until the degree to which Chinese authorities are willing to tighten credit and lending standards—an oft-stated goal of Xi Jinping’s administration—becomes clearer.

Investors also pulled back from Malaysia Equity Funds ahead of the country’s general election, which delivered a back-to-the-future result with former leader Mahathir Mohamad unseating the pro-business but ethically challenged incumbent Najib Razak. Redemptions from Malaysia Equity Funds hit levels last seen in 4Q14.

 

Cameron Brandt is Director of Research for EPFR Global, an Informa Financial Intelligence company.

TAGS: Mutual Funds
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