EPFR-tracked Emerging Markets Equity Funds posted inflows for the 32nd time in the 36 weeks year-to-date during early September, with all four of the major regional groups attracting fresh money for the first time since the second week of the fourth quarter in 2016, as EMEA Equity Funds saw their lengthy outflow streak come to an end. North Korea's accelerated missile testing continues to chase retail investors out of Emerging Markets Equity Funds but a reassessment of China's economy and expectations that the next U.S. rate hike may slip into next year are providing some overall tailwinds.
The positive flows recorded by EMEA Equity Funds were driven by commitments to Russia Equity Funds, which hit their highest level since late March as recent inflation data opened the door to further interest rate cuts and oil prices climbed past the $50 a barrel mark. Managers of diversified EMEA Equity Funds have been rebuilding their exposure to Russia–and Turkey–at the expense of African markets: the latest allocations data shows South Africa and Kenya's average weighting at 12 and 33-month lows while Russia's is at its highest level since the third quarter of 2015 and Turkey's since mid way through the second quarter that same year.
Among Asia ex-Japan Country Funds, both Korea and China Equity Funds recorded solid inflows. In the case of the former, the depreciation of the won–partly in response to North Korea's threats–have made Korean stocks cheaper for foreign buyers and improved the competitive outlook for Korean exporters. China Equity Funds, meanwhile, are benefiting from the government's focus on financial stability, improved corporate earnings and the possibility that the Communist Party Congress next month will set the stage for deeper structural reforms.
Latin America Equity Funds again benefited from the perception that Chinese demand for the region's commodity exports will be stronger than expected for the remainder of the year, something that will boost Brazil's chances of emerging from the deep recession that has wiped out over 6 percent of the country's GDP. Brazil Equity Funds posted consecutive weekly inflows for the first time since early June.
Cameron Brandt is Director of Research for EPFR Global, an Informa Financial Intelligence company.
