GEM Strategy - Emerging market fund flows: is there a silver lining?

Largest weekly EM outflows are from China, India, Taiwan, Russia, Malaysia and South Africa

Outflows from emerging markets (EMs) have continued in December according to the most recent data. Inflows remain small and infrequent. The largest weekly EM outflows (16-23 December) are from China, India, Taiwan, Russia, Malaysia, and South Africa. The order of outflows is somewhat different when measured as percent of AuM:  Qatar tops the list with c2.2% of AuM followed by Malaysia (-c0.8% of AuM), Russia (-c0.4%), China (-c0.3%), Egypt (-c0.3%) and India (-c0.2%).

Funds cut exposures to India while Brazil, Korea and Thailand attract inflows

Investors appear to reduce exposure to India while there is some trading interest in oversold markets. Thailand (+c0.5% of AuM), Korea (+c0.3%), Brazil (+c0.3%), Greece (+c0.2%) and Mexico are the markets where the direction of flows was positive as at 23 December. GEM money managers remain U/W most large EMs except for India, Brazil, Turkey, Mexico and Thailand.

DM space - outflows from the US equities, inflows to Japan, UK, Germany, France and Australia

Outflows from US equities have continued in DM space. Based on the data for the FL week ended 23 December, the outflows from US equity markets amounted to circa $3.5B (c0.1% of AuM). Funds selling US equities appear to have switched into Japan, UK, Germany, Australia and France. In fact, the weekly inflows into the equities in those 5 DMs are almost the same as the outflows from the US.

EM outlook - some consolidation in oversold countries but not a Buy and Hold market

We are not out of the woods by any stretch of imagination; and it is too early to say the worst is over. EM investors will need to form a view on the near-term direction of the market and act on it. This is not a Buy and Hold market; it never has been but more so now than before. It is conceivable to see some consolidation across LATAM and Asia positions. Some of the most oversold markets could be bought back but only with a short-term view.