Latin America Leads Charge Into Emerging Markets Equities to Start 2017 1
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Emerging markets continue to attract investors

Global investors have continued to find emerging markets appealing even in the face of possible multiple rate hikes in the US and President Trump’s conservative views on trade and immigration.

Data collected by Bank of America Merrill Lynch and EPFR Global shows that stocks and bonds from emerging markets have attracted $11 billion in inflows so far this year. Of this, $3.4 billion of the inflows went to emerging markets equities. Russia (RSX) has seen the biggest inflow so far, amounting to $956 million, followed by Brazil (EWZ) and India (EPI). Conversely, China (MCHI) has fallen out of favor, having witnessed outflows amounting to $1.4 billion.

Inflows into US equities (IWF) thus far in 2017 is equivalent to all emerging markets (EEM) combined. Of particular note are Japanese equities which dwarfed all other markets. The country has witnessed inflows of $11.4 billion in equities (EWJ) for YTD 2017.

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Emerging markets have done well this year

The graph above shows the performance of the iShares MSCI Emerging Markets ETF (EEM) vis-à-vis that of the Vanguard FTSE All-World ex-US ETF (VEU) and the Vanguard FTSE Developed Markets ETF (VEA). The EEM has outperformed both of its developed market peers.

Among emerging market equities, Latin America has led the charge. Investors have expressed confidence, specifically in Brazilian equities, that reform measures will help the country, and the region improve as 2017 progresses. EPFR Global as stated recently that “commitments to Brazil Equity Funds hit a YTD high as investors responded to the political trends and industry consolidation evident throughout the region.”

Russia has been in favor primarily due to the rise in crude oil prices, which is expected to boost the government’s budget. The country has been buying US dollars to replenish its reserves which can help it boost spending.

Meanwhile, India has seen moderate inflows as international investors want to see how demonetization impacts the economy and whether the inclusive growth measures announced in the country’s 2017-18 annual Union Budget are implemented effectively.

Though equity inflows remain strong, some still project that emerging markets will be witnessing capital outflows. Let’s look at one institutions argument for outflows in the next article.

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