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Emerging market outflows concentrated in Asia

From May to December, Asian equity funds saw €20.4bn of net outflows, compared to just €3.3bn for global emerging market equity (GEM) funds. Moreover, and against all odds, GEM funds saw net inflows of more than €1bn in the final quarter of 2015.

GEM bargain hunting

While the outflows from Asia-focused funds are hardly surprising considering the Chinese economic slowdown and its wider impact on markets, the recovery of GEM equity funds is notable. It suggests bargain hunters have returned to the market, considering global emerging markets are now down almost 15% since October 2014 (more than double the loss Asia ex-Pacific equities suffered over the period). Back then, valuations were already considered attractive.

And according to Expert Investor’s latest Pan-European data, collected in the previous quarter of last year, there has indeed been an uptick of interest in GEM equity funds. The share of fund buyers intending to increase their exposure to the asset class in the next 12 months has doubled in the last quarter of 2015, from 20% to 40%.

Asian equities had been more popular in 2014 and early 2015, which was reflected in fund flows as you can see in the chart above, but fund selectors now prefer global rather than Asian EM exposure. In most countries, those who intend increasing their allocation to GEM equity funds are more numerous than Asian equity fans. 

Part of the Bonhill Group.