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FUND FLOWS: Chinese Concerns, Tumbling Commodities and Sovereign Debt Weigh on Emerging Markets

Is the biggest weekly outflows from emerging market funds in three years an ominous sign or a bump in the road?

EPFR-tracked High Yield Bond Funds recorded their biggest weekly outflow in over three years and Emerging Markets Bond Funds saw an 11-week inflow streak come to an end during the second week of November as a rough patch for global equity markets prompted investors to pare back their exposure to riskier asset classes.

With some major equities indexes posting declines for five or more straight days, even the year’s biggest fresh money magnets, Global Equity Funds, struggled, with flows into this group the smallest since their current inflow streak began in late 2016.

Helped by the longest run of retail commitments since the first quarter of 2013, EPFR-tracked Emerging Markets Equity Funds managed to record modest inflows during the second week of November, despite fresh concerns about Chinese growth, dropping commodity prices, Venezuela’s sovereign default and expectations of another U.S. interest rate hike in late December.

For the second week running, Asia ex-Japan Equity Funds absorbed the lion’s share of the fresh money as Latin America Equity Funds recorded consecutive weekly outflows for the first time since August and the diversified Global Emerging Markets (GEM) Equity Funds for the first time since early January.

Although the latest Chinese data, which showed consumer spending, investment and industrial production all losing momentum, contributed to the chill that gripped global markets, though it didn’t stop investors committing money to China Equity Funds for the ninth time in the past 12 weeks. The Chinese government’s current emphasis on stability is attractive to investors looking to reduce risk. There’s also some hope that Premier X-Jinping’s consolidation of power will, despite fears to the contrary, translate to more structural reforms and further rebalancing of the Chinese economy.

Stable but slower Chinese growth is a mixed blessing for Latin America’s commodities story, and redemptions from Latin America Regional Funds hit levels last seen in midway through the second quarter going into the second half of November. At the country level, investors have warmed to Peru, which is closing in on 100 straight months of economic growth that has recently been investment driven. Peru Equity Funds have taken in fresh money for eight of the past 10 weeks. But fund managers appear divided, with GEM Equity Fund allocations for this market at a seven-month high while Peru’s average weighting among Latin America Equity Funds is close to the five-year low it touched in April.

It continues to be a good year for Emerging Markets Equity Funds with socially responsible investing or environmental, social and corporate governance mandates. This fund group has posted inflows every week year-to-date as investors bet that the filters used by these funds will cut the risks of investing in this asset class.

Fund flow data provided by EPFR Global, an Informa Financial Intelligence company.


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