Is it time for a turnaround in emerging markets equities? Could be, according to the latest exchange-traded fund (ETF) data from BlackRock. August marked the fifth straight month of inflows into ETFs focused on emerging markets equities, with $4.7 billion going into broad emerging markets and China funds.
Japan equity was another big winner in August with inflows into Japanese ETFs drawing an additional $1.5 billion in inflows. Why? Because, on a relative basis, Japanese stocks remain the most attractively valued in the developed world, according to the BlackRock report. Abenomics-driven stimulus will provide support for Japanese stocks for the foreseeable future, and corporate profitability has surprised on the upside because of a recent sales tax increase.
But emerging markets were the big story as investors showed renewed confidence in their ability to grow after a rough couple of years. The data show broad emerging markets funds adding $17.6 billion in the last five months—that has erased all those startling redemptions from the first quarter of 2014. It’s also pushed up emerging markets inflows to $11.6 billion and offset all 2013 redemptions at the same time.
Investors are also showing renewed love for Asia. Aside from Japan, Asian emerging markets have drawn investors’ attention as China’s growth outlook improves.
That’s coming at the expense of developed regions’ equity exposures—Europe, in particular, as it struggles to juice its economy toward growth with little or no luck. Growing tension in the Ukraine isn’t helping Europe either.
Here are the main highlights from the report:
- Global exchange-traded products (ETPs) are on track for a record year following flows of $23.3 billion in August, the highest ever for a month that is often impacted by a summer slowdown.
- Investors increased allocations to emerging market and Asia equity in search of relative value, but also bid up safe haven fixed income assets amid geopolitical uncertainty.
- Emerging market equity had a fifth straight month of inflows with $4.7 billion focused in broad emerging market and China funds, while developed Asia added another $3.4 billion led by Japan.
- Concern over growth in Europe and the lack of a stronger reaction from the European Central Bank drove pan-European equity outflows of ($2.8 billion), mostly in U.S.-listed funds.
- U.S. large cap equity ETPs shed ($0.1 billion) but recovered following redemptions of ($13.5 billion) during the first week of the month as the S&P 500 rallied to new highs.
- Fixed income flows of $11.5 billion included a high yield rebound, but the bulk of new assets went to safer long-duration Treasury and investment grade corporate funds.