The now-infamous “twist” in the Federal Reserve’s bond-buying activities is driving money out of emerging markets ETFs and mutual funds.
In the last week, another $1.4 billion flowed out of the asset class, accelerating a bit from the $1.3 billion in net redemptions that we saw in the previous numbers from fund tracking firm EPFR Global.
Last week, fear of a Greek default was the primary driver of cash out of emerging markets and other risk assets. This week, disappointment over the Fed’s decision to reallocate $400 billion to buying longer-term debt is being cited as a big driver.
Money poured out of all major regional markets. Funds focused on Asia lost a net $519 million, while the EMEA (emerging Europe, the Middle East and Africa) lost $304 million.
Latin funds fared slightly better, shedding a net $137 million over the week.
Once again, the balance of the selling is on the long-only mutual fund side, where managers have been slower to react to the recent shift in sentiment. While this has historically been a sign that the trend is close to bottoming out, we will need to see allocations to ETFs such as EEM (quote) shift from negative to positive before we can even speculate about the flows turning bullish again.
Still, some emerging markets are receiving limited investor interest, including the Philippines (EPHE, quote), South Korea (EWY, quote) and South Africa (EZA, quote), all of which have been badly beaten over the last few months:
On the other hand, once-popular markets like Indonesia (IDX, quote), Peru (EPU, quote) and Thailand (THD, quote) were among the week’s biggest losers:
Still, on a long-term basis, the asset class has exploded over the last few years in terms of investor interest. Since 2006, a net $149 billion has flowed into emerging markets funds — and that includes $40 billion in redemptions during 2008 and another $23 billion pouring out so far this year.