EPFR Global-tracked Emerging Markets Equity Funds posted outflows for the third time so far this year, going into the second half of March as retail investors who had dipped their toes back in the previous week for the first time since late October, pulled money out of this fund group for the 18th time in the past 19 weeks. Three EM Country Fund groups accounted for over $1 billion of the outflows, more than offsetting flows into the diversified Global Emerging Markets (GEM) Equity Funds.
Two of the three Country Fund groups were dedicated to Emerging Asian markets, China and Korea, with Korea Equity Funds experiencing their biggest outflow since early December following the confirmation of former president Park Geun-hye’s impeachment by the country’s Constitutional Court. The ruling leaves South Korea scrambling to schedule and hold new presidential elections at a time when North Korea is talking and acting aggressively. Domestic investors continue to drive the outflows, with won-denominated redemptions climbing to a 14-week high.
Among the smaller Asian markets, Pakistan remains the biggest single country allocation among Frontier Market Equity Funds although second-placed Argentina is closing the gap. According to Kamran Sheikh, a technical analyst with EPFR Global sister company Informa Global Markets, the lengthy rally that lifted Pakistan’s benchmark equities index to a record high in late January “has been showing some potential signs of exhaustion.” But Sheikh believes the underlying trends should support further advances in the countries equity market.
While Argentina’s reform story continues to resonate with investors and fund managers, the seven-week inflow streak compiled by Brazil Equity Funds came to an end as investors digested some painful 4Q16 GDP data for Latin America’s biggest economy, and worried that the reformist drive shown by President Michel Temer's administration may be sapped by an ongoing probe into government corruption.
Russia Equity Funds suffered through another week of sizable outflows amidst a run of daily declines in the price of the country’s key export: oil. The concerns about Russia’s ability to sustain its economic recovery if oil prices stay south of $50 a barrel also hit Emerging Europe Regional Funds, which have an average Russia allocation of over 50 percent. Outflows from this group were the biggest since April 2015.
Cameron Brandt is Director of Research for EPFR Global, an Informa Financial Intelligence company.