The long-standing negative correlation between fund flows to European equities on the one hand and emerging market equities on the other, which was uncovered by Expert Investor last year, remains firmly in place. Global emerging market equities saw their second consecutive month of net inflows, gathering €5.1bn (£4.4bn, $5.7bn) in new money from European investors according to Morningstar data. This was roughly the same amount as the month before, with the bulk of the money again flowing to actively managed global EM equity funds.
According to data on ETF flows published by Blackrock on Thursday, the inflows continued throughout September. And this may continue for some time to come. “This is due to the gentle Fed rate hike path as well as structural improvements within emerging economies, coupled with relative calm in the oil and Chinese markets,” said Ursula Marchioni, global strategist at iShares.
While active EM equity managers are profiting from bullish sentiment, their European equity colleagues continue to suffer from a post-Brexit scare. Net outflows halved in August compared to July, but still amounted to a hefty €7.6bn.
ETF outflows declined further in September, according to Blackrock ETF data, prompting the asset manager to suggest the tide may finally be turning for the asset class. “European investors started to put some money back into European equities. Given the ongoing concerns about the banking sector and upcoming political events in the region, it is too early to call whether this a reversal of the 10 consecutive weeks of outflows recorded from this exposure since Brexit – or for the bigger trend of outflows from this exposure since the start of the year. Yet these sprouts are certainly worth watching,” said Marchioni.
On the fixed income side, emerging market debt continued to be the best-selling asset class, seeing a net €6bn in net inflows. Investment-grade corporate bond funds also keep attracting money. Since March, the asset class has seen cumulative net inflows of €24.5bn.