EPFR Global-tracked Emerging Markets Equity Funds took in fresh money for the 18th straight week in mid-July as soft U.S. inflation numbers prompted investors to reassess their expectations for U.S. monetary policy. Three of the four major groups – Asia ex-Japan, Latin America and the diversified Global Emerging Markets (GEM) Equity Funds – recorded inflows that took the year-to-date figure for all EM Equity Funds over the $45 billion mark. At the same point last year net flows were still in negative territory.
The bulk of the week’s flows into Asia ex-Japan Equity Funds went to ones with regional, Greater China and dedicated India mandates. Normal to above normal monsoon rains, GDP growth forecasts of over 7 percent through 2018 and a reasonably smooth implementation of the new national Goods and Services sales tax (GST) contributed to the rebound in flows to India Equity Funds. But China Equity Funds experienced another week of outflows as investors wait to see how an official push to stabilize the country’s financial system plays out.
Among the smaller Emerging Asian markets Vietnam continues a rally that has seen its benchmark equities index gain over 20 percent so far this year and Vietnam Equity Funds post inflows for seven straight weeks. The country’s GDP growth is accelerating on the back of strong domestic demand and direct foreign investment flows. Vietnam is currently the third largest single country allocation among Frontier Markets Equity Funds after Argentina and Pakistan.
EMEA Equity Funds, meanwhile, recorded outflows for the 17th straight week as souring investor sentiment towards the politics of Russia, Turkey, Poland and South Africa, the failure of oil prices to rebound and the loss of skilled workers in Emerging European countries cloud the investment case for this diverse group of markets.
Flows to Latin America Equity Funds were positive for the third straight week as investors continue to cautiously reverse their earlier rotation from Mexico to Brazil. With U.S. President Donald Trump’s economic agenda largely stalled, fears of a more adversarial relationship between Mexico and its key trading partner are ebbing. Managers of Latin America Equity Funds are also reversing the rotation they made from consumer to energy and materials plays in the wake of Trump’s election.
Cameron Brandt is Director of Research for EPFR Global, an Informa Financial Intelligence company.