Emerging Market Outflows Continue Bleeding

Emerging Market (EM) fixed-income funds saw:

• the 2nd-largest weekly outflow recorded at $4.2 billion in the week ending Aug. 26,
• and overall EM net outflows of $10.5 billion in the past week are the largest since early 2008,

Dimitra DeFotis from Barron’s reports.

Emerging market fund exits may be close to a bottom. Courtesy of Bank of America/Merrill Lynch
and Barron’s.

According to Morgan Stanley:

Outflows have sharply accelerated in recent weeks and emerging market funds have now recorded over $7.5 billion of outflows in the past three weeks (2.9% of assets under management). Outflows were broad-based once again with local funds recording $1575 million of outflows (1.4% of AUM), the largest weekly outflow since January 2014.

Capital outflows from emerging market countries reached $120 billion in the second quarter of this year — the most since 2009 — led by an exodus from China’s markets during the country’s recent stock market crash, according to JP Morgan.

During the first quarter of this year capital flows into emerging markets rose $80 billion, according to JP Morgan. However, a sharp reversal was seen in the second quarter where international investors pulled $142 billion from Chinese equities between April and June, which extended the total outflow from the world’s second-largest economy over the past five quarters to $520 billion, according to the firm, and thus wiped out all the inflows since 2011.

A rout in EM stocks and currencies has deepened amid a series of devaluation events, oil prices at a six-year low and continuing to plunge amid a global glut, concerns about the U.S. Fed hiking interest rates, and growth concerns in China.

The week commencing on Monday, August 17th, was a rough week for emerging markets: EM currencies fell for a ninth straight week to extend their longest run of losses this century as they fell to a new record low, EM stocks had their worst week since 2012 and are at the lowest level since 2009.

In terms of performance of the biggest flagship EM exchange traded funds (ETFs):

• in sovereign hard currency debt, EMB is lower by more than 5% since a late-April high,
• and in stocks, EEM is off nearly 20% over the same time frame,

according to Seeking Alpha.