Posted inEmerging MarketsEquitiesFixed Income

Are EM fund flows reversing?

Emerging market equity funds registered net outflows of €3.4bn in September, a marked slowdown in withdrawals after the record outflows of July and August, when almost €18bn was pulled out of the category. Almost all of the outflows came from Asia, as global EM equity funds saw net outflows tumble to just €130m.

The IIF predicts non-resident EM portfolio flows to be positive in October, suggesting sentiment about the asset class has turned a corner following the benign direction of markets over the past weeks. Joachim Klement, chief investment officer at Swiss investment consultancy Wellershoff & Partners, is one of those investors who is cautiously increasing exposure to emerging markets again. “We are building up positions in emerging market stocks for some clients now. Overall however, we remain neutral towards the asset class,” he told Expert Investor Europe.

Most fund selectors are currently negative towards EM equities. Those planning to decrease their allocation have been outnumbering those who want to increase it for a while, and by a margin increasing over time. Hence the acceleration of outflows from the asset class this year.

There are three countries with a significant number of bulls however: France, Denmark and especially Finland, where six in 10 fund buyers plan to increase exposure in the next 12 months. When our researcher met them at the end of August when a massive sell-off was underway, Finland’s fund selectors struck a defiant tone saying they were ready to increase their allocation once they felt markets had reached the bottom. So the Finns are likely to have been among those adding to their EM holdings in October. 

Part of the Bonhill Group.