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FUND FLOWS: Investors Go Back to Brazil

Brazil saw its currency slide and its stock market take a battering as investors were critical. But equity funds focused on the country are taking in new money for the fifth time in the past six weeks, suggesting investors are finding attractive valuations amid the country’s modest recovery.

During the midweek of June investors pulled money out of emerging markets equity funds for the fourth straight week ahead of the U.S. Federal Reserve’s latest 25 basis point hike in short-term interest rates. The diversified global emerging markets equity funds experienced the heaviest outflows in cash terms and EMEA equity funds in flows in terms of a percentage of assets under management.

Brazil became the latest developing market to see its currency slide and its stock market take a battering as investors take a more critical view of fiscal deficits, statist economic policies and structural deficiencies. But Brazil equity funds posted inflows for the fifth time in the past six weeks. Attractive valuations, the current economic recovery and the country’s modest reform story have kept the money flowing into this fund group despite expectations that populist Jair Bolsonaro will win Brazil’s presidential election in October.

A credible reform story saw Saudi Arabia equity funds attract new money for the 12th straight week while the lack of one contributed to the eighth consecutive outflow chalked up by Russia equity funds. Flows for Russia equity funds do, however, look ripe for a reversal as Italy’s new government joins those of several central European countries in arguing for an end to sanctions, while oil prices remain north of $60 a barrel.

Among the other major EMEA markets, South Africa’s reform story—which helped South Africa equity funds post inflows 11 of the first quarter's 13 weeks—has taken a back seat to currency weakness and underwhelming macroeconomic data. The latest redemptions from South Africa equity funds were the largest since mid-4Q17. Turkey equity funds, meanwhile, set a new weekly inflow record that was due largely to the more that $130 million absorbed by a single Europe-domiciled ETF.

China equity funds chalked up another week of inflows, their 12th in a row, but were overshadowed among the Asia ex-Japan Country Fund groups by Taiwan and Korea equity funds. The former posted their biggest inflow since late 2Q15 while the later benefited from the seemingly successful conclusion to the meeting between President Donald Trump and North Korean leader Kim Jong-un.


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

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