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January 12, 2018 www.intellinews.com I Page 8
Emerging markets fund flows at highest level for a year
bne IntelliNews
Emerging markets are in favour, with fund flows into portfolios reaching their highest level for almost a year in the first week of January, according to the Institute of International Finance (IIF).
“Total EM portfolio inflows since the start of the year amounted to some $7bn— about $3.6bn into EM bonds and $3.3bn into EM stocks. However, the recent upswing in flows has not been broad-based. While Indonesia, Thailand and Korea have all seen solid positive inflows, foreign appetite for Philippines, Hungary and South Africa has been lacklustre. We continue to expect a more discriminating approach by EM investors during 2018,” IIF said in a bulletin.
EM investment was gathering momentum in 2017 with non-resident portfolio inflows into EMs of $9.4bn in December and $235bn for the year, well up on the $152bn invested in 2016.
And the EM funds, especially the ETFs, easily outperformed the more traditional indices in 2017. The MSCI EM index beat both the MSCI EAFE and MSCI USA indices, retuning 34.35% over 2017, vs 21.78% and 19.5% respectively.
That is probably good news for Russian stocks, but it may take a while for the EM enthusiasm to feed through. As Russia suffers from a “Russia discount” in addition to the generic EM discount, thanks to its appalling investment image and fraught geopolitics, it is usually last in line for portfolio allocations when EM markets come back into fashion.
And equity investment into Russia is very much fad based. Asbne recently reported that investors are becoming more interested in Russian stocks as it sets off on its fifth super cycle, simply as they are so cheap compared to their EM peers and at a