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BRIC dominate EM flow of funds

BRIC dominate EM flow of funds

5.6.2009 15:40

Flows for the week of 3 June

Flows by equity fund
• Core markets roller-coaster ride continued in the first week of June with US and Western European equity funds posting outflows.
• Emerging markets saw further inflows across the board.
• EM Asia funds benefited most with $ 1.5bn flows, followed by GEM funds and Latin America funds.
• Flows to EMEA funds remained relatively modest but positive for the fifth consecutive week.
• Outflows from Turkey and South Africa funds for the first time since mid-April.
• Russia funds race ahead with biggest single weekly inflow in the year so far.
• EM Europe funds also posted biggest weekly inflow year-to-date.

The flow picture suggests that investors remain unconvinced about the sustainability of the rally in core markets. After considerable inflows in the week of 27 May, US and Western Europe suffered again outflows. The lack of consistency in the flow pattern suggests to us that investors are reluctant to commit money for longer periods. Moreover, if profit taking gains pace, flows would probably turn immediately more negative.

The EM Europe (EME) flow pattern lends support to the view single-country funds are losing importance. Russia is the exception in EME but most other country funds have weaker balances than at the same time a year ago. Turkey funds, for example, had a positive balance of $ 107.6m at the end of May 2008.

Flows by country
• EM Europe lifted by positive flows across the board
• Russia continues to attract the biggest share, followed by South Africa, Turkey and Israel
• CE3 gains further traction as all three markets post inflows
• Frontier markets also benefit from positive flows

The decrease in flows in the week of 3 June tentatively suggests that investors are becoming a bit cautious about the outlook for Turkey, South Africa and Israel. We emphasize “tentatively” as a one week’s data is not sufficient to establish a trend. Nevertheless, these are lowest flows since late April to these three countries, while Russia flows increased in the same week. Perhaps the most positive news is that CE3 have seen another week of healthy inflows. Next week’s data should show whether concerns surrounding Latvia have negatively affected the region, but we would not expect any sustained impact in any event.

BRIC dominate flows
BRIC dominate flows to EM in the year so far. EM (EM Asia, EM Europe, Latin America) have attracted $ 21.4bn in flows year-to-date. BRIC have received the lion share with $ 14.5bn. Brazil ($ 6.1bn) and China ($ 5.7bn) are the leading destinations for investors. India ($ 1.7bn) and Russia ($ 1.0bn) lag well behind. There is catch-up potential for Russia in our view, but it will be difficult to reduce the gap as Russian stocks tend to benefit from the same factors as Brazilian stocks and China’s domestic momentum is considerably more positive than Russia’s

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