Page 69 - bne_newspaper_February_02_2018

bne February 2018 New Europe in Numbers I 69
Emerging markets hot again but Russia is trailing 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 momen- tum in 2017 with non-resident portfolio inflows into EMs of $9.4bn in Decem- ber and $235bn for the year, well up
on the $152bn invested in 2016.
And the EM funds, especially the ETFs, easily outperformed the more tradi- tional 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% re- spectively.
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. As bne Intellinews recently reported investors are becom- ing 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 corporate level some companies are seeing strong earnings growth, while the Russian dividend yield remains the highest in the world.
In 2017 the lion’s share of investment into EM was into fixed income, which accounted for $170bn or just under three quarters of all investment into EMs, and that was almost double the $99bn invested into to EM debt a year earlier.
China is still the investment destina- tion of choice however, with just under 80% of all EM investment, or $185bn, into the other EM markets in what was the best year for EM investment since 2014 when the US Federal Reserve bank ended its quantitative easing programme, according to IIF.
Net Capital Flows* (including E&O)
www.bne.eu