Going into May, EPFR Global-tracked Emerging Markets Equity Funds took in over $2 billion for the fourth time in the past seven weeks with the bulk of the latest inflows going to the diversified Global Emerging Markets (GEM) Equity Funds. Retail flows were positive for the fifth straight week, the longest such run since the start of 2013. Among the major regional groups only Asia ex-Japan Equity Funds took in fresh money as they added to their longest inflow streak in over 10 quarters.
Although investors are warming to Emerging Asia, they remain reluctant to take on direct exposure to South Korea, where domestic politics and the nuclear ambitions of its northern neighbor are giving pause for thought, and China. While China’s economic growth rate appears to have bottomed out, China Equity Funds have recorded outflows 13 of the past 14 weeks as investors look to side-step any fallout from the Chinese government’s efforts to stabilize the country’s financial system by curbing speculative lending and the sale of unregulated wealth management products.
Investors do like India’s 6 percent plus growth and ongoing reform story, with India Equity Funds’ current inflow streak standing at nine weeks and $1.7 billion. Europe-based GEM Equity Fund managers currently have larger allocations for both India and China than their U.S. peers.
Latin America Equity Funds posted modest outflows for the second week running. Investors continue to pull out of Mexico Equity Funds in the face of weak oil prices, rising interest rates and slowing GDP growth. Uncertainty about U.S. policy regarding both NAFTA and immigration are also hurting the funds. Peru Equity Funds also saw the money flow out in early May, with redemptions for the week hitting the highest total since the second quarter of 2014, after a series of major floods cut nearly 1 percent off this year’s GDP forecasts for the Andean nation.
Among the EMEA Country Fund groups, those dedicated to Russia and Turkey experienced further outflows. In the case of Russia, some investors are waiting to see if OPEC extends its production curbs when it meets later this month before buying into the projected recovery in Russia’s GDP growth.
Cameron Brandt is Director of Research for EPFR Global, an Informa Financial Intelligence company.