SLI Gars follows tide of global money chasing EM

Emerging market ETFs record largest monthly inflow in January

Standard Life Investment Global Absolute Returns Strategies (Gars) has jumped on the emerging markets bandwagon following a record month of flows for the asset class.

SLI Gars was previously net neutral toward the asset class, having a long EM/short Brazil position, but this was converted into an outright long EM equity holding in January to take advantage of cheaper looking stocks. It also added to its Chinese equity exposure over the month.

“Following the recent sell-off in risk assets, valuations for emerging market and Chinese equities look attractive,” said Aberdeen Standard Investments multi-asset specialist David Bint. “Furthermore, we expect both strategies to benefit from the Chinese stimulus measures in the medium term.”

The £11.3bn fund, which has been hit by a wave of redemptions as it struggles to deliver a positive return, ended January up 1.5%. On a one-year and three year-view returns were still negative at -5.9% and -1.3% respectively.

Emerging markets comeback after difficult 2018

A note from Macro Research Board Partners said that EM assets have benefited from riding “the tide of global hot money chasing carry trades” in 2019 and had seen flows into equity ETFs “spike dramatically” in recent weeks. It is overweight EM equities as well as EM local-currency denominated debt in anticipation of firming global economic indicators.

Emerging markets equities exchanged traded products saw their largest monthly inflow in January, according to data from iShares, with investors pouring over $3bn into the asset class putting it in a strong position to match $4.8bn quarterly inflows reaped in Q1 2018.

EM debt was also “the talk of the town” in January, iShares said, accounting for over half of the total fixed income inflows of $5.2bn. The $2.7bn net inflows coming into EM debt ETFs last month has already rivalled total net subscriptions for the whole of 2018.

GEM equities recorded the largest positive shift in net buyers in the fourth quarter, according to Last Word Research, with some suggesting the stock market sell-off that began in October prompted UK fund selectors to seek the “relative protection” of the asset class.

More recently EM equities have been buoyed by rising hopes for improvements in US/China relations, MRB Partners noted. Discussions ahead of the two nations’ self-imposed March deadline have placated investors that “the fog of trade war is lifting”.

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