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FUND FLOWS: North Korea Spooked Retail Investors, While Institutions Shrugged

Institutional investors gave emerging-markets equity funds a boost.

North Korea’s latest provocation chased more retail money out of EPFR-tracked Emerging-Markets Equity Funds during the fourth week of August. But institutional investors were more than happy to step into the breach, propelling inflows to a six-week high, with Global Emerging-Markets (GEM) Equity Funds absorbing the biggest share of those inflows.

At the country level, China Equity Funds recorded their biggest inflow since the start of 2016, as the latest GEM Equity Fund allocation data shows their average weighting for this market hit a fresh record high coming into August. With Chinese policy makers focused to steady, stable growth ahead of a key Communist Party congress in mid-October, foreign investors are beginning to dip their toes back in a market they have shunned because of a slate of concerns ranging from the degree debt is driving growth to the possibility of a trade war with the U.S.

Among the smaller emerging Asian markets, Pakistan Equity Funds recorded their biggest inflow in over two months, and Vietnam Equity Funds took in fresh money for the 11th time in the past 13 weeks. With Pakistan promoted to emerging-markets status, Vietnam is one of the markets in line to replace it as the biggest single-country allocation among Frontier-Markets Equity Funds. Vietnam is currently second, behind Argentina, with Kuwait only just behind.

While Kuwait may be popular with Frontier-Markets Equity Fund managers, investor appetite for exposure to the Middle East is at a low ebb. With oil prices low, the recent Hurricane Harvey–induced jump notwithstanding, Middle East Regional Equity Funds have posted outflows in 24 of the 26 weeks since the beginning of March, while Middle East and Africa Regional Funds have experienced 26 straight weeks of net redemptions.

Latin America Equity Funds, meanwhile, snapped a three-week run of outflows as better-than-expected economic data from China suggested a stronger short-term outlook for commodities prices. At the country level, Brazil Equity Funds snapped their longest outflow streak since early in 2015 as investors responded to some encouraging signs–lower interest and unemployment rates, progress on structural reforms–that the country is climbing out of its worst recession on record.

Cameron Brandt is director of research for EPFR Global, an Informa Financial Intelligence company.

TAGS: Mutual Funds
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