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FUND FLOWS: Investors Turn to Emerging Market Equity Funds

Once again the bulk of the week’s inflows went to the diversified Global Emerging Markets (GEM) Equity Funds.

With investors focused on the language surrounding the U.S. Federal Reserve’s latest rate-setting decision rather than the hike itself, flows into EPFR Global-tracked Emerging Markets Equity Funds rebounded strongly during the third week in March with one widely followed EM Index hitting a 20-month high. Once again the bulk of the week’s inflows went to the diversified Global Emerging Markets (GEM) Equity Funds.

Although China’s benchmark equities index has gained ground this year investors continue to pull money out of China Equity Funds. That fund group posted outflows for the eighth straight week while Greater China Equity Funds — which also invest in Hong Kong and Taiwan — experienced net redemptions for the 11th time in the 12 weeks year-to-date. Concerns that China’s property market will attract the attention of regulators and rate setters is the latest focal point for investor angst.

Fund managers remain sanguine that any tightening of monetary policy to keep China’s real estate market from overheating will be measured, with GEM and Asia ex-Japan Equity Fund allocations for this market at 14- and 21-month highs respectively. So far this year their purchases of Chinese equities have largely offset the selling by dedicated funds.

Among the smaller Emerging Asia markets, Malaysia has been attracting the attention of investors: the latest inflows to Malaysia Equity Funds hit a 51-week high and extended this fund group’s longest inflow streak since 3Q10. Fund managers are, however, taking the opposite track with regards to one of the region’s more defensive markets where inflation is accelerating and growth slowing. Coming into March, Asia ex-Japan Equity Fund allocations for Malaysia were at a record low.

The uncertainty surrounding Mexico’s current economic model saw dedicated Mexico Equity Funds post their biggest weekly outflow since late 1Q15. In addition to the possibility that the administration of U.S. President Donald Trump will sharply restrict trade and the movement of labor between the two countries, the health of state oil company Pemex  which is a key source of government revenue  is beginning to concern investors. Meanwhile, YTD increases in copper prices helped Chile Equity Funds record their biggest weekly inflows since late October.

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

TAGS: Mutual Funds
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