An abrupt shift in expectations for the next U.S. rate hike and President Donald Trump’s performance before Congress saw EPFR Global-tracked Emerging Markets Equity Funds post outflows for only the second time year-to-date. All three of the major regional groups experienced net redemptions, with Asia ex-Japan Equity Funds hit hardest in cash terms and EMEA Equity Funds in flows as a % of AUM terms.
Driving the redemptions from EMEA Equity Funds was the biggest weekly outflow recorded by Russia Equity Funds since 3Q13, one that ended their longest inflow streak since early 2011, as investors questioned the country’s oil story and the willingness of Trump’s administration to lift economic sanctions. GEM Fund managers have already starting trimming their exposure, cutting their Russia allocations during January for the first time in five months.
In addition to cutting their exposure to Russia coming into February, GEM Fund managers also cut Indonesia’s average weighting to a 13-month low, rotating some of that exposure to China and Korea with the latter seeing its average allocation hit a level last seen in late 3Q14. Investors remain leery of China despite its better macroeconomic numbers and commitment to 6.5% plus GDP growth, pulling money out of China Equity Funds for the fifth straight week, and have redeemed money from Indonesia Equity Funds 11 of the past 15 weeks.
The one BRIC market that continued to attract investor cash was Brazil, with Brazil Equity Funds pulling in over $100 million for the fourth time YTD. Brazil’s central bank recently cut its key interest rate by 75 basis points and another cut of similar magnitude (or bigger) is expected at its April 12 meeting. Dedicated BRIC Equity Funds also attracted fresh money, extending their longest inflow streak since late 2Q14.