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FUND FLOWS: Emerging Markets Continue Streak While Monetary-Policy Changes Linger

Central-bank tightening isn’t deterring investors from China, Korea, Mexico and others.

Responding to a more benign consensus on the pace of monetary tightening in the U.S. and Europe, investors committed fresh money to EPFR-tracked Emerging Markets Equity Funds for the 19th consecutive week in late July. That is their longest inflow streak since a 24-week run, driven by a renewed investor enthusiasm for China’s story, which ended in the first quarter of 2013. 

The enthusiasm for China, which saw China Equity Funds record their biggest quarterly inflow in over a decade during 4Q12 as investors embraced the promise of reform that accompanied current President Xi Jinping’s assumption of power, remains conspicuously absent. China Equity Funds have now posted outflows for 10 straight weeks and 25 of the 30 weeks year to date. But fund managers continue to take the opposite tack, with the average allocation for China among the diversified Global Emerging Markets (GEM) Equity Funds climbing to a new record high coming into the third quarter.

GEM Equity Fund managers also continue to cut their allocations to the most popular market among investors, India. So far this year, India Equity Funds have attracted over $10 billion. But the average GEM Fund allocation is currently at its lowest level since the second quarter of 2015.

Both investors and fund managers are on the same page when it comes to the relative merits of Latin America’s two biggest markets. As U.S. President Donald Trump’s agenda bogged down and OPEC moved to bolster oil prices, Latin America Equity Fund managers started in the middle of this year’s first quarter to rotate exposure from Brazil to Mexico. Investors are now following suit: Brazil Equity Funds posted their fourth consecutive weekly outflow while Mexico Equity Funds took in fresh money for the sixth time in the past eight weeks.

EMEA Equity Funds saw money flow out for the 18th week in a row. Low oil prices and adverse political developments in markets ranging from Qatar to Poland continue to weigh on investor sentiment. Middle East and Africa (MEA) Equity Funds posted the 21st consecutive outflow, with the latest redemptions the largest since the second quarter of 2014, and Russia Equity Funds saw their current outflow streak hit eight weeks and $750 million.

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

TAGS: Mutual Funds
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