Disclaimer & Disclosures
Disclaimer & Disclosures
This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which
forms part of it.
USD4bn along in the week ended 26 April
EM funds and related assets should continue to benefit from an improved China-EM growth
outlook, range bound UST 10yr yield (2.2-2.5%), softer USD and low cross asset volatility. Easy
global and EM inflation pressures will likely keep market expectations towards EM central bank
monetary policy actions in the neutral/dovish camp (p.7), which is positive for local debt
markets. Moreover, French election results has reduced DM political and policy risk. Yet,
concerns about US trade policy and geopolitical risks remain in place. We are constructive on
EM and see pullbacks as a continued buying opportunity as the discussions we had with
investors and policy maker during the IMF-WB meetings still suggest a benign outlook.
Stronger inflows to EM over DM funds in % of AuM terms, in the week ended 26 April. Among
EM bond funds, Brazil, Mexico and Indonesia received the largest inflows in USD terms, while
frontier markets led in % of AUM terms. Within EM equity funds, China, India and Taiwan
grabbed the largest inflows, in USD terms. Strong institutional fund flows led the boost in flows
to bonds and equity funds (p.13). In DM, US funds led gains among bond funds, while all DM
equity funds showed gains, led by US, Japan and Germany.
HSBC’s early signalling system still suggests strong appetite for EM funds across the board (p.
14). Likewise, EM fund flows momentum (p. 5) and dispersion indicators (p. 8) shows
constructive dynamics for bonds and equities. Finally, daily financial account portfolio flows
show strong gains in bonds (seven countries), mainly S. Korea, India and S. Africa, and into
equities (eight countries), mostly to S. Korea, Indonesia and India (p. 15).
On benchmarks’ total return, EM equities jumped 3.1% w/w (14% y-t-d), led by Turkey, Poland
and Russia. LCD added 0.2% w/w (6.7% y-t-d), on carry (0.1% w/w; 2.1% y-t-d) and EM FX
(0.1% w/w; 3.6% y-t-d), mostly TRY, PLN and HUF. EM Corp gained 0.2% w/w (4.5% y-t-d),
lifted by HY (0.6% w/w; 5.6% y-t-d). EXD grew 0.1% w/w (5.1% y-t-d), on Venezuela, Argentina
and Ukraine.
Last week’s equity flows
Source: EPFR Global, HSBC
Last week’s bond flows
Source: EPFR Global, HSBC
Bertrand Delgado
Director, Senior EM Strategist
HSBC Securities (USA) Inc.
bertrand.j.delgado@us.hsbc
+212 525 0745
Kishore Muktinutalapati*
Equity Strategist, Frontier & Emerging Markets
HSBC Securities & Capital Markets (India) Pvt Ltd
kishoremuktinutalapati@hsbc.co.in
+91 80 4555 2756
John Lomax*
Head of Global Emerging Markets Equity
Strategy
HSBC Bank plc
john.lomax@hsbcib
+44 20 7992 3712
Issuer of report:
HSBC Securities (USA) Inc.
Published:
28 April 2017
*Employed by a non-US affiliate of HSBC Securities (USA) Inc,
and is not registered/ qualified pursuant to FINRA regulations
View HSBC Global Research at:
https://research.hsbc
GEMs funds flows
MULTI-ASSET
GLOBAL EMERGING
MARKETS
-1.00.01.02.0
EM total
GEMs
AxJ total
Lat-Am total
EMEA total
USDbn
-0.4-0.20.00.20.4
% AuM
0.02.04.0
CEEMEA
Lat-Am
AxJ
GEMs
By Region
Blended
Hard
Local
By Currency
EM total
USDbn
0.00.51.01.5
% AUM
22March–28April
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ResearchSurvey2017
EM funds added over USD25bn since mid-March
MULTI-ASSET ● GLOBAL EMERGING MARKETS
28 April 2017Next week, investors should focus on the Fed rate
announcement (HSBC and consensus: unchanged
at 0.75-1%) and the release of manufacturing and
non-manufacturing indicators in the US and China
for the start of 2Q17.The market will also follow
closely US labor numbers for April.
Bond fund flows
Strong inflows to EM bond funds continue for the
thirteen consecutive week, led by EXD as well as
GEMs and LatAm funds (charts 25 and 26). So far
this year net inflows into bond funds amount to
USD29bn, supported by EXD (USD17bn) from the
currency type and GEM from the regional side
(USD25.6bn).
Inflows to EM corporate bond funds persisted for
the fourth consecutive week, led by EXD and cross
over funds (charts 27&28). Investments in EM
corporate bond funds amount to USD2.2bn y-t-d.
In March, allocations in EXD increased mainly in
Mexico, Turkey, and China, compared to February,
at the expense of Venezuela, Brazil and Russia.
On LCD, Mexico, Indonesia and Peru, gained the
most, while positioning in Malaysia, S. Africa and
Thailand dropped (p.18).
According to the Ministry of Finance, Bond
investment by Japanese institutional investors
abroad fell by USD11.8bn in the week ended April
21, following a drop of USD26.9bn in the preceding
two weeks. The week ending 7 April witnessed
largest weekly selling (USD19.6bn) in the last two
years. The latest monthly breakdown of Japanese
overseas bond investment shows selling for the
third consecutive month in February (USD18.7bn).
Outflows were also noted from Brazil (USD0.1bn),
Korea (USD0.1bn) and Malaysia (USD0.1bn)
among other emerging markets. Largest Japanese
investments were seen into bonds in Russia
(USD106m).
During the week ended April 26, Uridashi bond
(retail bond in Japan) issuances was triggered by
issuances in MXN (USD13.8mn) and ZAR
(USD2mn). YTD, MXN was the favourite currency
in EM space with total issuance of USD326mn.
MXN is followed by INR and TRY.
Equity fund flows
During the week ending 26 April, EM equity funds
posted strong inflows (of USD1.9bn equivalent to
0.2% of total AuM) for the sixth straight week.
Year-to-date, EM equity funds in total received
cUSD18bn in inflows. Particularly, the GEM funds
(with broad mandate to invest across EMs)
benefitted the most. Thanks to the strong inflows
and solid performance of the assets, AuM for the
GEMs funds in our sample is currently the highest
on record (chart 1). Global fund managers have
also just started to increase their active allocations
to EM equities. However, as we argued in our
report (Monthly GEMs Equity Flows: What
excessive enthusiasm, 27 April 2017), nothing of
this points at excessive enthusiasm towards EM
equities. Moreover, looking ahead, we think there
is a good scope for the liquidity trends to remain
supportive thanks to support from benign macro
conditions, improving corporate profitability,
reasonable valuations and attractive currencies.
Further, EM equities could benefit from hunt for
cyclical value.
Turning to the fund flows over the past week (ending
26 April), amongst EM regions, Asia ex Japan saw
inflows while EMEA and LatAm saw outflows (chart
63). By country, smaller markets – the Philippines,
Turkey, Chile, Poland, Indonesia and Colombia –
saw sizable inflows (in % of AuM terms) while, UAE,
South Korea, Peru, Brazil, Mexico, Russia and
Malaysia saw outflows (chart 61).
Sector wise, inflows were broad-based – IT and
Financials led the pack while Industrials and
Materials sectors lagged. The sector composition
of net value of assets held by EM funds, as
estimated by EPFR, shows that the relative
allocations to IT, Financials and Healthcare have
increased in the recent years while that in
Materials, Energy and Industrials fell. However, it is
worth noting that despite the strong rise in
allocations to IT, the sector remains sizably
underweight in the GEM equity portfolios. We
think, GEM funds have not rebalanced their
portfolios quickly enough to match the pace of rise
of the sector representation in the benchmark
indices (for details see HSBC Research report The
curious case of the IT sector, 29 March 2017).
MULTI-ASSET ● GLOBAL EMERGING MARKETS
28 April 2017Historical evolution of flows to EM funds
Chart 1. Equity funds: assets under management (USDbn)Chart 2. Bond funds: assets under management (USDbn)
Source: EPFR Global, HSBCSource: EPFR Global, HSBC
Comparison of flows to EM vs. DM
Chart 3. Equity funds: EM vs. DMChart 4. Bond funds: EM vs. DM
Source: EPFR Global, HSBCSource: EPFR Global, HSBC50
100
150
200
250
300
350
400
450
500
550
200620072008200920102011201220132014201520162017
GEM Fund TotalsAsia ex-Japan Fund Totals
Latin America Fund TotalsEMEA Fund Totals
USDbn51525
30
35
40
4550
100
150
200
250
300
350
400
200620072008200920102011201220132014201520162017
GEM FundsEM FundsAsia ex-Japan Funds (RHS)Latin America Funds (RHS)
EMEA Funds (RHS)
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1.8%
2.0%
Last WeekLast MonthLast 3 MonthsYTD
EM EquitiesDM Equities
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Last WeekLast MonthLast 3 MonthsYTD
EM BondsDM Bonds
We acknowledge the contributions of
Ramya R S in this report. Ms. R S is
an associate in our Bangalore office,
and she is not registered/ qualified
pursuant to FINRA regulations.
MULTI-ASSET ● GLOBAL EMERGING MARKETS
28 April 2017Comparison of flows to DM and EM, and global liquidity
Chart 5. Central Bank Balance Sheets: Total Assets (Index, end of
2006=100)
Chart 6. Cumulative DM and EM fund flows since 2007
Source: Bloomberg, HSBCSource: Bloomberg, EPFR Global, HSBC
Chart 7. Cumulative DM and EM fixed income fund flows since 2007Chart 8. Cumulative DM and EM equity fund flows since 2007
Source: Bloomberg, EPFR Global, HSBCSource: Bloomberg, EPFR Global, HSBC100
200
300
400
500
600
20072008200920102011201220132014201520162017
ECBFEDBOEBOJGloballiquidity
Index
-8823
30
38
0708091011121314151617
-2525
50
75
100
125
EM (RHS)DM
% AUM% AUM
-1515
30
45
60
75
-2525
50
75
100
125
150
20072008200920102011201220132014201520162017
EM FIDM FI (RHS)
% AUM% AUM
-101030
40
50
20072008200920102011201220132014201520162017
EM EqDM Eq
% AUM
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