Exchange-traded funds (ETF) linked to equities in emerging markets including China are recovering from an exodus of investor money after the US Federal Reserve decided to delay exit from its massive stimulus.
The US central bank maintained its US$85-billion-a-month bond buying program, once again bolstering investor appetite for higher-yielding, riskier assets. Emerging markets suffered sell-offs in the middle of the year amid fears the era of easy money was coming to an end.
“We saw actually the story to reverse,” Mark Wiedman, global head of BlackRock Inc.’s iShares, told the Hong Kong Economic Journal’s EJ Insight. “People are coming back to high yield because they think the tapering is going to last longer.”
As of Oct. 17, net year-to-date outflows in the United States from emerging-market equity exchange-traded products (ETP) narrowed to US$2 billion, from about US$7 billion in June, when Fed chairman Ben Bernanke flagged a possible pullback of quantitative easing should the US economy improve.
On Oct. 23, investors poured in an additional US$500 million into iShares products linked to emerging-market stocks, Wiedman said.
“Right now investors are basically flat for the year in terms of having gone out and then come back again,” he said. “If the trend continues, it will be significantly net positive.”
By comparison, Japanese equity ETPs saw US$5.5 billion in net inflows in the first 10-and-a-half months, and a net US$7.6 billion flooded into Europe. The best performer of US equity ETPs snapped up a net US$26.3 billion.
BlackRock is the world’s top ETF provider, with US$864 billion of assets in August. The global ETF industry is worth US$2.2 trillion.
As Bernanke pushed back the tapering call, and emerging markets from Hungary to Chile cut interest rates in the past two months, some argue the world is at the cusp of another round of monetary easing.
In China, a flurry of economic indicators also underlined the reversal of liquidity flows. The People’s Bank of China (PBoC) was alerted about underlying inflation risks in an economy creeping out of a slowdown.
According to central bank data, China’s yuan funds outstanding for foreign exchange — a key gauge of international capital movement into or out of the country — climbed for a second month in September, to 27.5 trillion yuan (US$4.5 trillion). Also, trade surplus and foreign direct investments from Asia, Japan, Europe and United States were all up in the first nine months from a year ago.
For BlackRock’s flagship iShares FTSEA50 China Index ETF in Hong Kong, assets under management reached US$6.8 billion recently, reviving from this year’s low of US$5.9 billion on June 26.
China’s economic growth accelerated to 7.8 percent in the third quarter, from 7.5 percent in the preceding three months and 7.7 percent in the first quarter.
Reflecting the inflows, the renminbi reached its 20-year high of 6.0802 per US dollar on Oct. 25. The best-performing Asian currency has appreciated by 2.3 percent this year. The PBoC said on Oct. 16 the country faces credit expansionary pressures amid a large influx of liquidity.
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