Equity funds from developing regions saw net outflows in excess of €10bn, according to Morningstar’s latest fund flow figures. Meanwhile, emerging market debt funds saw record net outflows of €7.2bn. Asia ex-Japan equity funds recorded net outflows of €7.8bn in August, continuing a decelerating trend. Net outflows from global emerging market equity funds were comparably modest, at only €2.5bn. This is similar to outflows recorded in March and April.
Net outflows from emerging market debt funds were possibly even more dramatic than those from their equity counterparts. Over summer they have taken a dramatic turn, plunging from +€1.2bn in May to -€7.8 in August. The bulk of the outflows came from government bonds, which have come fire because they are mostly denominated in local currencies.
The news comes as emerging markets are set for their first net capital outflows since 1988, according to a report published by the Institute of International Finance (IIF) on the 1st of October. While flows from developed markets (inward investment plus portfolio flows) are slowing down rapidly, investors based in emerging market economies are, for their part, taking their money elsewhere.
The outflows correspond with what fund selectors have been telling us this year. Appetite for investing in emerging markets has been edging downwards steadily. Right now, sellers outnumber buyers for both equities and bonds in all but one country.
High yield bond funds were also affected by the market turmoil: they saw their largest net outflows since December last year, although net outflows during the ‘Taper Tantrum’ in the summer of 2013 were nearly twice as high (see graph above).
