Emerging market outflows hit two-year high

Emerging market fund flows have suffered their worst week since 2011, as investors fear a correction arising from the tapering of the US’s QE program.

In the week to 5 June, investors pulled a net total of $7bn from emerging market bond and equity funds, according to research group EPFR.

Equity funds reported net outflows of $5.5bn; the worst week since February 2011.

Meanwhile, EM bond funds shed $1.5bn, after a fall of $240m the previous week, to record their worst week since October 2011.

Local currency debt funds reported their first net outflow since July 2012, down $343m, while hard currency bond funds lost $984m.

Steve Ellis, manager of the £775m Fidelity Emerging Market Debt fund, said the “broad and indiscriminate wave of selling pressure” would begin to settle in the second half of the year.

“The temporary weakness in emerging market debt performance has been led by softness in growth fundamentals, which have been showing signs of temporary deterioration,” he said.

“The effect was compounded by the market reaction to the interpretation of the potential of the US Fed to potentially taper off QE. It was not a surprise to have investors be temporarily concerned about these moves.

“With the recent downdraft in performance due to the above factors, I would expect temporary modest outflows from the sector.

“Although the broader asset allocation of investors is still underweight to emerging markets, we expect that investors will look to continue to allocate over the longer strategic period.”


This article was first published on Investment Week

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