Analysis of capital flows is a fundamental part of being an investor in EM. What do the flows mean, what are the trends, where are they leading??? The data we have endured in the last 6-8 weeks in EM is nothing short of remarkably bad. Last week outflows from GEM totaled $3.8Bn surpassing the $3.0Bn figure from a week before and extending the record run of outflows to 19 straight weeks. Emerging Money would maintain that despite the unabated negative flows, investors should not assume this trend has to continue or that this is a core statement on where they are headed. Arguably EM equities have built a decent support base on the MSCI EM around 925 and we have a trading range with that floor and a top around 1000 (see chart).
These levels on the MSCI EM are relatively defined ranges that have priced in FX carnage, current account fears, domestic politics, and geo-politics that have been old fashioned EM style scary.
More color into the flows: ETFs suffered the greatest outflow within the asset class with -$2.7Bn in funds out while non-ETF funds were -$1.1Bn. During the current record duration outflow streak ETFs have suffered the greater % of AUM outflow than have mutual funds. As we have written in this space, mutual funds are a much more established group of investors where ETF investors can be by nature be more volatile and less committed capital. ETFs have seen -8.2% of AUM outflow versus mutual funds with -3.6% % of AUM out.
As investors look at the opportunity to make money in EM over the next 12-18months this data series has have some folks getting pretty excited about the future, not the past.
MSCI EM Trading Range