There Was A Massive Outflow From Emerging Markets This Week

Not surprisingly, as emerging markets came under serious stress in the past week, investors pulled billions of dollars out of the asset class, marking the biggest weekly outflow since August 2011.

According to the latest EPFR data, EM equity funds got hit with $US6.3 billion of redemptions, and EM debt funds suffered $US2.7 billion of withdrawals.

“EM outflows have only just started,” says Alain Bokobza, head of strategy at Société Générale.

EM outflowsEPFR Global, Datastream, SG Cross Asset Research/Global Asset AllocationCumulative inflows into EM equities funds and ETFs; monthly data since 2007. EM market capitalisation relative to U.S.

“Given the exceptionally strong link between EM equity performance and flows, we think itplausible that funds are currently withdrawing double that from EM equity.”

Even though the term “emerging markets” encompasses a wide range of investment destinations, investors aren’t being very discerning at the moment.

“Mutual fund and ETF investors in EMs both favour global EM funds,” says Bokobza.

“Regional or country specialisation is less common (less than 47% of global EM assets). The implication is that all EM markets face outflows currently, with little discrimination between the countries that are most exposed and those which are more defensive.”

While Bokobza sees “no early end to EM asset de-rating,” others are taking a more sanguine tack following the announcement of central bank rate hikes in key emerging markets like India, Turkey, and South Africa this week.

“Much of the media (and not only on the financial pages) seems to be vying to produce the most bearish story on emerging markets,” says Bartosz Pawlowski, global head of EM strategy at BNP Paribas.

“We have actually moved Turkey from biggest underweight in our portfolio to a slight overweight (keeping other shorts like South Africa or Russia at the same time).”

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