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FUND FLOWS: Emerging Markets Equity Funds Continue To Gain New Money

European politics and a strong U.S. economy are pushing investors to look for growth in emerging and frontier markets.

EPFR-tracked Emerging Markets Equity Funds posted inflows for the sixth straight week in late September, as retail support continued to rebound. Funds with dividend mandates snapped a five-week outflow streak while Emerging Markets SRI/ESG Equity Funds extended an inflow streak stretching back to the first week of the year and commitments to Frontier Markets Equity Funds came in at a 14-week high.

Flows into Asia ex-Japan Equity Funds slipped to their lowest level since mid-August, as the longest run of weekly inflows for China Equity Funds since the fall of 2014. That market continues to enjoy strong support from the diversified Global Emerging Markets (GEM) Equity Funds, whose average exposure to China hit a fresh record high coming into September. This was also the case for Global Equity Funds, whose allocation to China is approaching 4 percent and now exceeds those for Canada, Australia, Italy and Spain.

Among the smaller Emerging Asian markets, Bangladesh saw its average Frontier Markets Equity Fund weighting climb to a new high, as did Vietnam. The latter's allocation among Asia ex-Japan Equity Funds remains close to the record high set in late June.

Latin America Equity Funds extended their longest run of inflows since late in the first quarter of 2016, with Brazil Equity Funds attracting over $100 million for the third straight week as investors translated predictions that the country’s inflation rate will fall below 3 percent for the first time into further interest rate cuts. According to Natalie Rivett, an analyst with EPFR sister company Informa Global Markets, Brazil’s central bank is likely to lower its benchmark rate to 7 percent by the end of the year but could well hold at that level for much or all of 2018.

Flows to EMEA Equity Funds were also positive, with this fund group posting consecutive weekly inflows for the first time since February. Russia Equity Funds recorded their biggest inflow in over seven months as oil prices remained north of $50 per barrel thanks to Turkey’s threat to close a key export pipeline if Iraq’s Kurdish minority vote for independence. The prospect of a ‘yes’ vote resonating with Turkey’s Kurdish population, however, contributed to the biggest outflow from Turkey Equity Funds since early August.

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

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