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Disclaimer & Disclosures
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Net inflows to EM equity funds surge
Favourable external and domestic conditions in EM continue to attract investors to the asset
class, reflected by solid capital flows, a strong performance y-t-d and constructive funds flows
momentum. We still see good prospects for EM local markets as valuations are not
overstretched and positioning is not overcrowded. Moreover, we think the catch-up process will
persist (for details see our report GEMs Investor: Why EM is more resilient, Q3 2017).
There were larger inflows to EM funds than to DM for the third consecutive week, as a
percentage of AUM, in the week ended 2 August. Within EM bond funds, Mexico, Brazil,
Thailand and India received most of the inflows in USD, while India, South Korea and Frontier
markets had the largest inflows as a percentage of AUM. Among EM equity funds, South
Korea, India and China captured the most in USD, while Frontier markets and South Korea saw
the largest inflows in AUM. Inflows into non-ETF and institutional funds were supported EM
bonds, mainly EXD, while ETF and institutional funds boosted equity funds (p.13). In DM, US,
European and Global funds added the most within bond funds and HY reversed last week’s
redemptions. Global and European funds led inflows to DM equity funds while US equity funds
posted outflows for the seventh consecutive week.
HSBC’s early signalling system highlights re-energised demand for EM risk (p. 14). Similarly,
EM fund flows momentum (p. 5) and dispersion indicators (p. 8) point to an improving risk
appetite. Daily financial account portfolio flows show large inflows to bonds (seven countries),
mainly Thailand, India, and South Korea, but outflows from equities (eight countries), mostly
South Korea and Thailand. Brazil and India received inflows (p. 15).All but EM FX are at new
y-t-d highs in total return terms. EM equities increased 0.7% w-o-w (24.13% y-t-d) led by
Hungary, Brazil and Colombia. LCD added 0.7% w-o-w (12.8% y-t-d), driven by EM FX (0.5%
w-o-w; 6.1% y-t-d), mainly COP, HUF, BRL and PLN. EXD added 0.4% w-o-w (7.4% y-t-d),
mainly Turkey, Indonesia and Egypt, despite large losses in Venezuela. EM Corp gained 0.2%
w-o-w (6.61% y-t-d), due to IG (0.3% w-o-w; 6.5% y-t-d).
Last week’s equity flows
Source: EPFR Global, HSBC
Last week’s bond flows
Source:EPFR Global, HSBC
Bertrand Delgado
Director, Senior GEMs Multi-Asset Strategist
HSBC Securities (USA) Inc.
bertrand.j.delgado@us.hsbc
+1 212 525 0745
Kishore Muktinutalapati*
Equity Strategist
HSBC Securities & Capital Markets India Pvt Ltd
kishoremuktinutalapati@hsbc.co.in
+91 80 4555 2756
John Lomax*
Head of Global Emerging Market Equity Strategy
HSBC Bank plc
john.lomax@hsbcib
+44 20 7992 3712
Issuer of report:
HSBC Securities (USA) Inc.
Published:
04 August 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
-2.00.02.04.0
CEEMEA
Lat-Am
AxJ
GEMs
By Region
Blended
Hard
Local
By Currency
EM total
USDbn
-0.50.00.51.0
% AUM
Appetite for EM risk remains strong
MULTI-ASSET ● GLOBAL EMERGING MARKETS
04 August 2017Bond fund flows
Inflows to EM bond funds continued for the 27th
consecutive weeks, led by EXD and GEM funds
(charts 25-26). Year-to-date net inflows to bond funds
amount to USD47.7bn, led by EXD (USD28.4bn)
from the currency type and GEM funds from the
regional side (USD44.5bn). Non-ETF funds have
added USD32.6bn and ETF USD14.7bn y-t-d.
Inflows to EM corporate bond funds continued for the
third consecutive week, led by cross-over and EXD
funds (charts 27-28). Investments in EM corporate
bond funds are USD1.55bn y-t-d.
According to the Ministry of Finance in Japan,
institutional investors remained net buyers of foreign
bonds for the fourth consecutive week, purchasing
USD9.6bn in the week ended 29 July 2017, taking
cumulative flow into foreign bonds to USD20.3bn in
the last two weeks.During the week ended 2 August,
Uridashi bond (retail bond in Japan) issuance was
triggered by issuances in MXN (USD218.9m) and
INR (USD8m). Year-to-date, MXN was the favourite
currency in the EM space with total issuance of
USD978m, followed by TRY and INR.
Equity fund flows
EM equity funds saw another week of strong inflows
during the week ended 2 August. Last week’s inflow
(of cUSD2.2bn) marked the 20th consecutive week of
inflows to EM equities (chart 76). Year-to-date
cUSD42bn has flowed into the asset class but this is
still only a third of outflows recorded over the previous
four-year period. Although most of the inflows
(cUSD30bn) have been into passive funds, inflows of
cUSD12bn into active funds mark a turnaround in
flow momentum there.
By region, inflows were broad-based with the
exception of EMEA equity funds (chart 63). Asia ex-
Japan funds saw strong inflows of cUSD1.6bn (at
0.4% of AuM), the highest in two years (chart 84).
GEM funds (with broad mandate to invest across
EMs) and LatAm funds saw moderate inflows. Even
for EMEA funds, the outflows fell sharply (chart 86).
By country, South Korea, the Philippines, Qatar, India
and Mexico saw sizeable inflows (as a percentage of
AuM) while Chile, Greece, Taiwan, Turkey, UAE and
Indonesia saw outflows.
For Korea, last week’s inflow of 5.8% of AuM
(equivalent to USD1.2bn) was the highest since 2009
(chart below). Strong inflows were helped by buying
from domestic institutional investors, who seem to
have shrugged off the rise in regional geopolitical
tensions, the new administration's proposed tax hikes
and measures to curb property speculation. Further,
strength in the semi-conductor industry and broadly in
the tech cycle underpins the Korean equity
performance. The market has benefited from a
cyclical rally driven by a demand recovery in the US,
reasonable valuation and a normalisation of domestic
politics. We expect these drivers to remain in place.
Flows into South Korea equity funds
Source: EPFR Global, HSBC calculations
-11357-20%
-15%
-10%
-5%
0%
5%
10%
Jan-05Jan-06Jan-07Jan-08Jan-09Jan-10Jan-11Jan-12Jan-13Jan-14Jan-15Jan-16Jan-17
Th
ous
and
s
Weekly flow (% of AuM)Cumulative flow (USDbn) - RHS
USDbn% of AuM
MULTI-ASSET ● GLOBAL EMERGING MARKETS
04 August 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
600
650
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
450
200620072008200920102011201220132014201520162017
GEM FundsEM FundsAsia ex-Japan Funds (RHS)Latin America Funds (RHS)
EMEA Funds (RHS)
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
Last WeekLast MonthLast 3 MonthsYTD
EM EquitiesDM Equities
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
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
04 August 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
45
0708091011121314151617
-1515
30
45
60
75
90
105
120
135
150
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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