Investors bailed out of the diversified Global Emerging Markets Equity Funds during the third week of June as the escalating trade dispute between China and the U.S., allied with U.S. monetary tightening, added to the pressure on global economic growth. The record-setting redemptions from this fund group meant that EPFR-tracked Emerging Markets Equity Funds overall posted outflows for the fifth straight week, their longest such run since 1Q16.
U.S.-domiciled funds accounted for the bulk of the week’s headline number and retail redemptions hit levels last seen in 1Q16.
Among the exceptions to the overall trend were China Equity Funds, which took in over $1 billion for the fifth time this year. A combination of capital controls, tighter regulation of China’s shadow banking system, the stability of the country’s currency and policymaking, solid economic growth and China’s inclusion in key MSCI indexes and has helped pull over $13 billion into China Equity Funds so far this year. One area, however, where China Equity Funds lag EM Funds overall is the flow to funds with socially responsible investment or environmental, social and governance mandates.
Although the flows to China Equity Funds suggest that investors are still discounting the possibility of an all-out trade war between the world’s two largest economies, Mexico Equity Funds continue to benefit from the search for insurance against this eventuality. Despite the prospect of a left-of-center populist winning in next month’s presidential election, Mexico is viewed as one of the few winners if the U.S. and China do push things further as tariffs on Chinese exports to the U.S. will likely make goods manufactured in Mexico more competitive.
While Mexico Equity Funds were posting their 12th inflow in the past 16 weeks, Colombia Equity Funds absorbed fresh money for the seventh straight week as the pro-business candidate Ivan Duque won the run-off election for the country’s presidency.
Among the EMEA Country Fund groups, investors continue to buy into Saudi Arabia’s reform story—which may see it promoted from frontier to emerging markets status by index provider MSCI—and take advantage of the lira’s sharp depreciation to acquire cheap exposure to Turkish assets. Saudi Arabia Equity Funds chalked up another record inflow and Turkey Equity Funds attracted fresh money for 10th consecutive week.
Cameron Brandt is Director of Research for EPFR Global, an Informa Financial Intelligence company.