Bigger investors pouring money into emerging markets belie EM outflows
By Libby George
LONDON, May 23 (Reuters) -Big-money investors are beginning to place more cash in emerging markets as they chase returns in what could be a structural shift in the way they allocate their money, a veteran Bank of America economist told Reuters.
Large global fixed income funds, which have more firepower than those dedicated to emerging markets, are placing bets in "huge sizes" in key places, David Hauner, head of global emerging markets fixed Income Strategy at Bank of America told Reuters.
Countries with positive growth or reform stories, including Mexico, Brazil, Turkey, India and Poland, are getting the money. Short-term bets in Egypt and Nigeria have also become popular.
"I think that is the beginning of a structural story," Hauner said, adding investors wanted specific country exposures, rather than index products that package together a range of emerging market assets.
"You're seeing outflows from dedicated (funds) and at the same time people involved in crossover. That is the new thing. I don't recall that this has ever happened before."
The flows suggest that investors are rewarding certain countries as they implement reforms that are painful to citizens, such as currency devaluations and subsidy cuts, in an effort to shore up state finances.
They also belie closely watched data from EPFR that show some $5 billion in outflows year to date from emerging market debt funds, excluding China.
Hauner said there was no single data point that captured the investments. EPFR data reflects exchange-traded and mutual funds that comprise a set mix of emerging markets, often dominated by China.
But as fates fracture among developing countries, with China, for example, lagging in returns, and other typically riskier countries, such as Egypt, on the rise after an influx of cash from the UAE and the International Monetary Fund, a wider range of investors want to place money in select emerging markets - rather than via a fund with a set mix of assets.
Alejandro Arevalo, head of emerging market debt at Jupiter Asset Management, said the unexpectedly strong performance of economies such as Mexico, India and Vietnam had made them "darlings of investors."
"Money has been flowing in into these into these countries," he said, adding that they had done well in battling inflation and positioning themselves to benefit from trade tensions between the United States and China.
He said traditional flows would likely reflect the shift soon.
Already, Hauner said there are "puzzle pieces" illustrating the current cash flows, including Institute of International Finance figures, which rely on balance of payment data.
IIF data, for example, showed foreigners adding about $32.7 billion to their emerging market portfolios in March, a fifth consecutive month of overall foreign net flows to emerging markets.
This year's rally in high-yield bonds from Egypt to Pakistan, and the market's absorption of billions in bond issuance from Turkey to Ivory Coast, also lend credence to the view of inflows.
"It just reflects that EMs (are) growing up and that global debt investors want to have a fair share of exposure," Hauner said. "They're more stable than it used to be. And yet they're offering quite attractive yields."
Closely watched data shows outflow from emerging markets https://tmsnrt.rs/3wMXtCG
EM portfolios notch $32.7 billion inflows in March https://reut.rs/44gBwse
High-yield sovereign bonds stage surprise rallies https://reut.rs/3UVUCzy
Reporting By Libby George. Editing by Karin Strohecker and Toby Chopra
Relaterade tillgångar
Senaste nytt
Ansvarsfriskrivning: XM Group-enheter tillhandahåller sin tjänst enbart för exekvering och tillgången till vår onlinehandelsplattform, som innebär att en person kan se och/eller använda tillgängligt innehåll på eller via webbplatsen, påverkar eller utökar inte detta, vilket inte heller varit avsikten. Denna tillgång och användning omfattas alltid av i) villkor, ii) riskvarningar och iii) fullständig ansvarsfriskrivning. Detta innehåll tillhandahålls därför uteslutande som allmän information. Var framför allt medveten om att innehållet på vår onlinehandelsplattform varken utgör en uppmaning eller ett erbjudande om att ingå några transaktioner på de finansiella marknaderna. Handel på alla finansiella marknader involverar en betydande risk för ditt kapital.
Allt material som publiceras på denna sida är enbart avsett för utbildnings- eller informationssyften och innehåller inte – och ska inte heller anses innehålla – rådgivning och rekommendationer om finansiella frågor, investeringsskatt eller handel, dokumentation av våra handelskurser eller ett erbjudande om, eller en uppmaning till, en transaktion i finansiella instrument eller oönskade finansiella erbjudanden som är riktade till dig.
Tredjepartsinnehåll, liksom innehåll framtaget av XM såsom synpunkter, nyheter, forskningsrön, analyser, kurser, andra uppgifter eller länkar till tredjepartssajter som återfinns på denna webbplats, tillhandahålls i befintligt skick, som allmän marknadskommentar, och utgör ingen investeringsrådgivning. I den mån som något innehåll tolkas som investeringsforskning måste det noteras och accepteras att innehållet varken har varit avsett som oberoende investeringsforskning eller har utarbetats i enlighet med de rättsliga kraven för att främja ett sådant syfte, och därför är att betrakta som marknadskommunikation enligt tillämpliga lagar och föreskrifter. Se till så att du har läst och förstått vårt meddelande om icke-oberoende investeringsforskning och riskvarning om ovannämnda information, som finns här.
