Inflows into emerging market assets are estimated to have reached $12.3 billion (€11.4 billion) in January. But after the weakest year for this class since the financial crisis in 2016, is the inflow evidence of positive sentiment, or just “the eye of the storm”?
Data from the Institute of International Finance (IIF) showed there were inflows into emerging market equities of $7.7 billion and debt markets of $4.6 billion. In January 2016 there were outflows of $14.2 billion.
However, IIF sounded a note of caution: “It is too early to tell if this reflects hope for a better outlook–or if this is just the eye of the storm”.
China has been the main drag on emerging market performance, because over the whole of last year outflows from China reached $725 billion, which was up from $160 billion of outflows in 2014.
Concerns of further outflows prompted the Chinese authorities to tighten capital controls last month. According to IIF, market indicators suggested that outflows would slow down in the first part of this year. If US-based multinationals start to repatriate their profits back from China, outflows could worsen.
IIF said global fund managers had cut exposure to US equities and increased allocations to emerging markets, a reaction to the “Trump reflation trade” which has helped boost commodity prices and with it the countries that export them.
The most favoured emerging markets by investors were Asia ex-China, with $8 billion of inflows largely driven by Indonesia, and Latin America, where inflows into Brazilian equities buoyed the region resulting in $3.2 billion.
European emerging markets saw its first inflows since October last year with $2 billion.
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