EM News: EM Portfolio Flows Lose Steam


By Gordon Platt

Strong investor flows into emerging markets funds at the beginning of 2012 have since moderated but not reversed. Analysts say the slower pace of inflows is more sustainable and is not a cause for concern.

“This fall-off has been mainly due to a sharp slowing of flows to equities,” according to a report by Barclays emerging markets strategists in London. “Meanwhile, the momentum in bond fund flows has generally held up.”

The surge in EM equity buying earlier this year was in part a readjustment by investors from a defensive posture at the end of 2011, Barclays says. Thus, it would be unrealistic to expect the fast pace to continue, it adds. A shortage of new EM sovereign debt issues and attractive yields on EM local currency bonds suggests that flows to bond funds will continue, Barclays says.

Analysts at Brown Brothers Harriman (BBH) in New York said EM assets should perform well in 2012, given the firm’s base-case scenario of no hard landing in China and continued US recovery.

EM bond funds had their best start to a year on record through March 27, according to EPFR Global. EM equity funds tracked by the firm attracted fresh money every week of the year to date, with diversified funds getting the most money.