Investors pile into EMD trackers
Emerging market debt ETFs saw record net inflows of $5.8bn over the third quarter globally, according to Blackrock. Total inflows this year have already beaten the previous full-year record set in 2012.
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Emerging market debt ETFs saw record net inflows of $5.8bn over the third quarter globally, according to Blackrock. Total inflows this year have already beaten the previous full-year record set in 2012.
Even though they continue to have issues with absolute return funds, fund selectors in Munich feel forced to move back into the asset class.
Record-low borrowing costs are continuing to fuel a debt build-up in both developed and emerging markets. Global debt has now reached 327% of GDP, according to the International Institute of Finance (IIF), with EM non-financial corporate debt increasing at the fastest rate.
As part of their ongoing search for yield, European investors are intending to increase their exposure to emerging market debt. While ready to take on a bit more volatility, they still shy away from taking on duration exposure in the region.
Emerging market bonds have undergone a remarkably quick transformation from being one of the least loved asset classes to perhaps the most popular. This has been driven by the relative attractiveness of emerging market debt compared to developed market fixed income, but to what extent have the fundamentals of the asset class actually improved?
The popularity of bond funds was reinforced by the Brexit vote. While all fixed income asset classes saw net inflows, investors especially flocked to emerging market debt in July, according to fund flows data from Morningstar.
In June, emerging market bonds was the only asset class to see an improvement in fund flows from the previous month.
European investors have been pouring unprecedented amounts of money into fixed income ETFs this year, while they are taking money out of equity ETFs, according to data from Blackrock.
Corporate bond funds are strongly back in fashion after a long streak of outflows, as investor confidence inched up in March and the ECB announced the inclusion of corporate bonds in its QE programme. Emerging market debt even witnessed the biggest net monthly inflows in more than two years, according to Morningstar’s latest fund flows…
Investors are fleeing from emerging market debt, and optimism for any recovery in the near term is low, particularly for local currency government bonds.
Debt-to-GDP ratios in emerging market countries have been rising at alarming rates this year, according to the latest data from the Institute of International Finance (IIF). China, Saudi-Arabia and Turkey have seen the most rapid debt build-up.
The high yield bond sell-off has proved short-lived. After two months of strong net outflows, fortunes for the asset class have reversed once again. For other fixed income asset classes, fund flows remained negative.