Emerging-Market ETFs See Biggest Inflow in Year as Risks Abound

LAGOS (Capital Markets in Africa) – Traders defied all the jitters over a global economic slowdown and piled into emerging-market ETFs for a 16th straight week.

Investors added $3.9 billion to stock and bond ETFs across developing nations as well as those that target specific countries in the week ended Feb. 1 — the most in more than a year, according to data compiled by Bloomberg. That’s pushed up this year’s inflows to $11.8 billion.

Emerging markets had a strong start to 2019, with stocks clocking up the best performance since 2016. Investors were lured by cheaper prices, the prospect of the Federal Reserve remaining on hold and optimism over trade talks. At the same time, potential drags lingered — the Chinese economy is slowing down and equity valuations have soared.

“It’s going to be a year where you’ve got to be selective with your emerging-market bets,” said Satoru Matsumoto, a fund manager at Japan’s Asset Management One Co., which oversees the equivalent of about $490 billion in Tokyo. “A dovish Fed has given some leg to the recent emerging-market rally, but I don’t expect this to lead to the kind of Goldilocks environment we saw back in 2017.”

Yet some firms remain confident that the slowdown in growth expectations is more pronounced for developed than emerging economies. And with the Fed on hold, the backdrop would be supportive for developing-nation assets to outperform.

“We have increased exposure to EM local currency debt and in ‘hard currency’ credit prefer sovereign over corporate due to relative valuations, despite improving corporate fundamentals and low default rate,” London-based David Riley, chief investment strategist at BlueBay Asset Management, said in a noteto clients.

January was also a record month to the second biggest emerging-market ETF, the $57.7 billion iShares Core MSCI Emerging Markets ETF, known as IEMG. The fund received over $4.2 billion in inflows last month, the most since its inception in 2012, pushing up its share price by 9.6 percent, the biggest increase since March 2016.

Following are tables detailing net flows for emerging-market ETFs in U.S. dollars. The data include the holdings-weighted allocations from multi-country funds, as well as country-specific funds (figures in USD millions unless otherwise stated):

Source: Bloomberg Business News