PA ANALYSIS Gems not yet shining again

Recent numbers from institutional data house EPFR have shown record outflows for global emerging market funds certainly no longer the jewels in the investment crown.

PA ANALYSIS Gems not yet shining again


The report revealed that institutional investors accounted for over $5bn of the $6.33bn of outflows from the EPFR Global-tracked Emerging Markets Equity funds during the fourth week of January as significant redemptions were suffered across EMEA, Latin America and Asia ex-Japan Equity sectors.

The group said that Global Emerging Markets Equity funds posted their biggest outflow on record in US dollar terms and the biggest since Q1 2011.

Grouping these countries together is often criticised as something of a catch-all solution, perhaps no longer as relevant as it once was for economic reasons and used simply as easy marketing shorthand.

Single-country funds, while necessitating more specialist resources come with a degree of higher risk, arguably at a greater cost. But their potential upside, as a result, can be a lot higher and groups showcasing such specialisms will reap the benefits.

EPFR, referring to the 'exodus' of institutional money this month did note some as swimming against the tide, with Turkey and China Equity funds doing well, and Poland,  Colombia, Korea and China on the fixed income side faring better than their more diversified Gem peers. Those focused on the Piigs saw Italy and Spain take in more than $100m in their equity strategies.

Added to these woes are the index figures, with 39 of the 46 emerging market indices falling in January, according to S&P Dow Jones, and concerns over currency collapses – with Turkey, South Africa and Indian central banks taking steps to control their weaker monetary position and more governments expected to follow suit.

Broad expectations are that assets will shift towards the US as investors once again express their flight to safety.

While Egypt was up 8 per cent (21 per cent higher over the last 12 months) despite its political turmoil, other markets facing the typical catalyst for change of election years include India and Indonesia.

Schroders' emerging markets economist Craig Botham said those with greater exposure to higher US yields, or the 'fragile five' – Brazil, India, Indonesia, South Africa and Turkey –will suffer further market uncertainty, hopefully resulting in positive reform.

"Democracy does not lend itself to painful decisions in the run up to elections, but the immediate post-election period is often when governments feel they have the strongest mandate to effect change."

Whether investors are tiring of the too-broad fund strategies which might not best-reflect their underlying country exposure (why not just go global and invest in a 'catch all' that does exactly what it says on the tin?), simply reverting to type and moving into safer asset classes as the US's fortunes pick up or watching and waiting ahead of a flurry of elections, Gems are failing to shine… yet.

Conscious that many of these reports have taken a very short-term view, as the 2014 calendar unfolds, it's a case of watching and waiting where the money is heading, or deciding to – also – swim against the tide.


Latest Stories