Why Emerging Market Exchange Traded Products Saw Huge Inflows
This “sweet” economic backdrop helps explain an EM rebound, evident in EM-related exchange traded products (ETPs) attracting nearly $16 billion this year, according to BlackRock research. EM ETPs have recouped 75 percent of 2015 outflows, the “short EM” trade is much less crowded than it was at the start of the year, and EM valuations are no longer unambiguously cheap, our research suggests.
Market Realist – Emerging market inflows are rising
Major emerging market ETFs such as the Vanguard FTSE Emerging Markets ETF (VWO) and the iShares MSCI Emerging Markets (EEM) (IEMG) have witnessed strong inflows over the past three months. Total inflows into emerging market ETFs since mid-February 2016 have totaled $11 billion through the week ended April 22, 2016. That’s ten consecutive weeks of gains.
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According to data compiled by Bloomberg, emerging market ETF inflows amounted to $658.8 million for the week ended April 22, 2016, compared to $706.5 million in the previous week. Stock funds collected $604.4 million, while bond funds garnered $54.5 million. Current weekly gains have lasted the longest since the 11-week gain that ended on May 29, 2015.
Funds focused on Brazil (EWZ) collected $162.4 million compared to $15.8 million in the previous week. South Korea (EWY) was next with inflows of $81.6 million compared to $10.6 million in the previous week.
Valuations are no longer cheap
With the rise in stock prices since February, valuations in many emerging markets have risen. The MSCI Emerging Markets Index is trading at a forward PE (price-to-earnings) multiple of 12x compared to 11x in January. On the other hand, the PBV (price-to-book value) ratio of the MSCI Emerging Markets Index has risen to 1.27x compared to 1.15x in January.
In the next part of our series, we’ll look at the risks to the emerging markets story.