Investors are pulling more money out of the emerging markets and related exchange traded funds as traders turn risk adverse in light of U.S. rate concerns and monitor growing problems in Russia and China.
According to EPFR data, investors have been fleeing emerging market equity funds over the past two weeks, reports Juliet Samuel for the Wall Street Journal.
For instance, the iShares MSCI Emerging Markets ETF (NYSEArca: EEM) experienced $1.8 billion in outflows since September 11, according to ETF.com data.
However, some of that money may have found its way back into cheaper emerging market ETF options. For instance, the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO), which has a 0.15% expense ratio, saw $445.8 million in inflows over the same period while the iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG), which has a 0.18% expense ratio, attracted $459.6 million. EEM has a 0.67% expense ratio. [EM ETF Outflows Not Yet a Cause for Panic]
Russ Koesterich, BlackRock’s global chief investment strategist, contributes the outflows from emerging market funds to “concerns over increasingly erratic Russian policy, slower Chinese growth and higher U.S. rates.”
Nevertheless, the Russia stock ETF has been attracting some bottom fishers trying to tap into a cheap market. [Another Return to Russia ETFs]
Michael Hartnett, Merrill’s chief investment strategist, also pointed to emerging markets as one of the current areas of weakness as investor appetite for risk wanes and expectations for global growth fall, especially as the Federal Reserve prepares to end its bond-buying program next month.
“The poor performance… is a harbinger of lower liquidity, the end of excess returns and the end of excessively low volatility,” Hartnett said in a note.
The quickly appreciating U.S. dollar has also weighed on key emerging market currencies. For example, the Turkish lira, South Africa’s rand and Brazilian real have been feeling the pressure.
Moreover, the Bank of International Settlements also voiced concerns over potential capital flight from illiquid emerging markets, which could exacerbate price movements. [Emerging Market Volatility Rising as More Utilize ETFs, Funds]
For more information on developing economies, visit our emerging markets category.
Max Chen contributed to this article. Tom Lydon’s clients own shares of EEM and IEMG.