HOLLYWOOD, Fla.: Investors may be more finicky when it comes to emerging markets after violence in Egypt and stronger US data drove record net redemptions from the sector’s biggest exchange traded fund last week.
Exchange traded equity funds registered net outflows of $2.173 billion in the week ended Feb. 2 as investors were rattled by political upheaval in Egypt. The largest flows came from emerging markets, according to data from Lipper, a Thomson Reuters service.
At the same time interest only continues to grow in US-focused ETFs as economic data and earnings gain strength.
Since the global economic crisis of 2008, investment has poured heavily into emerging markets, including the so-called BRIC markets of Brazil, Russia, India and China.
Increased political risk in Egypt and wider inflation concerns have triggered a shift of investment from emerging markets to more developed economies.
"Even for people who want to be in emerging markets, we’ve increasingly seen they don’t want the broad emerging market," said Sue Thompson, a managing director at iShares. "They want to specifically choose the countries they want to be in."
iShares saw the largest outflow of ETF money from its MSCI Emerging Market Fund (EEM), the sector’s biggest and broadest, which had a net outflow of $4.45 billion in the latest week, according to Lipper.
Thompson, speaking on the sidelines of IndexUniverse.com’s Inside ETFs conference, said South Korea, Thailand and countries in Eastern Europe were continuing to draw investor attention.
"Where we’ve seen people evidence some hesitance has been in India and in China because of the inflation concerns that are there," she said. "And obviously they are avoiding the Middle East for now."
A spate of upbeat US economic data and higher-than-expected fourth-quarter company earnings have increased investor’s interest in domestic equities.
Fund-tracker EPFR Global said US equity funds took in a net $4.78 billion in the week ended Feb. 2.
Glenn Smith, vice president of fund manager Van Eck Global, said there was increased attention towards US stocks.
"You are looking at people who are tweaking their portfolios to allow more US exposure," he said.
EPFR’s latest data also showed on a regional level net outflows from the BRICs of $316 million while emerging Europe had net outflows of $141 million in the last week.
While China and India also had outflows, Russian equities had net inflows of $195 million as it continues to attract capital due to higher oil prices and relatively cheap valuations. The MENA region (Middle East and Africa) had outflows of $80 million.
Still, Smith said emerging markets would continue to be enticing to investors, particularly consumer-driven companies looking to capitalize on growing middle classes in emerging markets.
"There are going to be ebbs and flows," he said. "There may be some profit-taking right now since emerging markets have outperformed so much over the last few years, but there is still opportunity there." Additional reporting by Daniel Bases
