October was a month of recovery for the world’s stock markets, and for fund flows as well. While they improved for pretty much all long only asset classes, with the exception of US, Japanese and frontier market equities, emerging market equities experienced the biggest change.
The asset class saw net inflows of €1.1bn over the month, the highest since August 2014. Emerging market debt flows stayed negative, but outflows decreased from €4.2bn in September to just €611m in October. The turnaround coincided with the biggest monthly gain of the MSCI EM Index since April. In September, emerging market equities had witnessed net outflows of €3.3bn.
Finns keep their word
Still, the inflows into emerging market equities remain modest compared to those into European stocks, which approached the €8bn mark in October. This is consistent with long-term fund selector sentiment: in all countries we survey, European equities are currently in high demand, while emerging market stocks are not very popular.
There are a few exceptions, and the most notable of those is Finland. Three months ago,
while the China-induced stock market turmoil was reaching its climax, our local researcher interviewed fund buyers in Helsinki. In defiance of the contemporary fashion, many of them told her they were planning to increase their EM equity exposure in the next 12 months. And so they did, according to Sijoitustutkimus, a company that collates local fund flows data. They added a net €118m to their emerging market equity holdings in October, with Emerging Europe (+€52m) and Asia (+€61m) being the most popular.
Switzerland also saw an uptick in demand for emerging equities, with net inflows totalling CHF468m. Though just 17% of Swiss investors said they would increase exposure to EM equities when they were interviewed by our researcher when he visited Zurich in September, the number of sellers was even much smaller, at 9%. Not all European countries witnessed net inflows into EM equities however. Spain, which is among the countries with least appetite for emerging markets, still saw money flowing out of the asset class in October.
Click here to see a full overview of recent fund flows for all asset classes.