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FUND FLOWS: Long Emerging Market Equity Inflow Streak Continues

Fresh money to emerging markets has been this consistent since the beginning of 2013.

Going into June, EPFR Global-tracked Emerging Markets Equity Funds posted their 11th consecutive inflow, extending their longest run since a 23-week streak ended in the first quarter of 2013. But the weekly total was the lowest since the current run began in the third week of March, as the prospect of higher U.S. interest rates, fresh uncertainty about Chinese growth and fears that hotter markets, such as India, are overbought took their toll on investor sentiment.

The India Equity Funds tracked by EPFR Global have taken in over $7 billion year-to-date as the combination of strong growth, record setting direct foreign investment, falling domestic interest rates and a reform story still showing signs of life have propelled India’s benchmark equities index, the SENSEX, to fresh record highs this quarter. The annual monsoon rains — a key factor in the health of India’s agricultural sector, and the degree to which food prices drive inflation — have just begun and forecasts are calling for a normal year.

Politics in Brazil have been anything but normal for well over a year, with current President Michel Temer threatened by the same corruption scandal that toppled his predecessor Dilma Rousseff. But investors continue to pump fresh money into actively managed Brazil Equity Funds and ETFs. Brazil’s economy recently emerged from recession, making it somewhat easier for Temer’s administration to push through reforms aimed at stabilizing Brazil’s public finances.

Investors and fund managers also continue to back Argentina’s reform story, with Argentina Equity Funds absorbing fresh money for the seventh time in the past eight weeks, and Argentina holding on to its position as the largest single country allocation among Frontier Markets Equity Funds.

Elsewhere, Russia Equity Funds snapped their longest run of outflows since the first quarter of 2014, as investors responded to the extension of the oil production capping agreement in effect with OPEC. But the effectiveness of the deal in keeping a floor under the price of Russia’s key export came under fire as the week progressed.

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

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