The Strategist

Investors turn to emerging markets once again

02/08/2021 - 09:32

International investors have reduced their investments in developed markets. Renewal of historical highs by US indices during the last months, as well as uncertainty with the next tranche of monetary stimulus, is forcing investors to choose more profitable directions, first of all developing countries. China, which is expected to improve its relations with the USA, remains a winner.

The latest data from Emerging Portfolio Fund Research (EPFR) indicate that international investors have sharply reduced their investments in developed market funds. Based on estimates from BCS Global Markets and Bank of America that take EPFR data into account, inflows into these funds totaled $3.3 billion for the week ended February 3. In previous weeks in January, inflows were $12-20 billion.

Against this backdrop, interest in emerging markets remains more resilient. According to EPFR, net investments in emerging markets funds amounted to $5.7 bln during the reporting week, while the average for the previous three weeks was $6 bln. Investors remain significantly interested in China funds (inflows of $1.5 bln, the same level as in the previous two weeks).

At the same time, the slowdown did not prevent the leading US indices from renewing their historic highs, and the German DAX - from approaching its historic record. The performance of Chinese indices, on the other hand, was not so impressive. Shanghai Composite index has remained near the level of 3,500 points since early February. These values, although close to the highs from the beginning of 2018, are 1.5 times lower than the historical high reached in mid-2015. Part of the pressure on the Chinese stock market is the U.S. policy: President Donald Trump at the end of last year significantly restricted U.S. funds' investment in the securities of Chinese companies.