Posted inDACHEmerging MarketsEquities

Funds flow back to emerging markets

The change comes as fund selector appetite for emerging market investments is rebounding across Europe. Expert Investor Europe conducted research in four countries this spring, and in all of them demand for emerging market equities and bonds alike has jumped.
 
From May 2013 until March 2014 included some net €8.6bn had been deducted from global emerging market equity funds. In April, the asset class saw net positive inflows of €1.7bn, indicating a possible turnaround. Sentiment towards Asia ex-Japan equities is also improving, with net outflows falling from €2.3bn in January to a mere €73mln in April.
 
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As usual, the recent spike in equity flows to the emerging markets can quite accurately be explained by preceding flows into emerging market debt. Emerging market debt is often the first asset class investors increase their allocation to when strategically starting to believe in the emerging markets theme again. On EIE research trips to Germany, Finland and Italy, several fund selectors indeed told us they had started to increase their exposure to emerging market bonds, before throwing their full weight behind EM stocks.
 
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More in store?

Emerging market debt flows, which are way more volatile by nature then equity flows to the region, indeed started their rebound a month before equities. From June last year to February 2014 global emerging market bond funds suffered combined net outflows of almost €24bn. In March, flows were positive for the first time in nine months, while net inflows tripled in April to €4.4bn. Considering EMD inflows have predicted some 66% of EM equity flows over the past 36 months, there is reason to expect there is something in store for the latter. 

Part of the Bonhill Group.