- ETF investors are funneling money back into riskier assets like the emerging markets
- Broad and regional emerging market equity-related ETPs have swelled by $2.9 billion
- iShares MSCI Emerging Markets ETF (NYSEArca: EEM) saw $2.1 billion in net inflows for March month-to-date
While volatility and uncertainty spiked earlier this year, the markets have calmed down, with exchange traded fund investors funneling money back into riskier assets like the emerging markets.
“As we approach the end of Q1, iShares ETF flow data suggests that investors are moving back to a ‘risk on’ approach in emerging markets,” Paul Young, V.P. of Corporate Communications at BlackRock, said in a note.
For instance, according to BlackRock data, US exchange traded product flows, which include both ETFs and exchange traded notes, show broad and regional emerging market equity-related ETPs have swelled by $2.9 billion month-to-date, their highest monthly flow since July 2014.
The iShares MSCI Emerging Markets ETF (NYSEArca: EEM) saw $2.1 billion in net inflows for March month-to-date, the highest level since April 2014.
“We have seen a dramatic reversal in investor sentiment towards emerging markets so far in March,” Martin Small, BlackRock’s Head of U.S. iShares, said in a note. “Investors are returning to a ‘risk on’ approach, with steadier commodities prices and a more stable outlook on key markets like China likely influencing factors.”
The inflows are coming in as emerging market stocks rallied on an advance from January past 20%, with the MSCI Emerging Markets Index on the threshold of a bull market. EEM has surged 23.3% since its January 20 lows and broke back above its long-term, 200-day simple moving average.
“Oil is clearly a near-term positive and we’ve already heard from the Fed,” Terry Sandven, chief equity strategist at U.S. Bank Wealth Management, told Bloomberg. “It’s been a good week and a great month for equities as stocks have benefited from the winds of change. Many of the items that have plagued sentiment and overall equity returns, really since the beginning of the year, seem to be of less of an immediate concern.”
For instance, the weakening U.S. dollar has helped prop up emerging market currencies. Additionally, the emerging market outlook seems more promising after the prolonged underperformance.
“In the short term, the rally can probably continue, because the emerging markets are being supported by a weaker dollar,” Esty Dwek, global strategist at Loomis, Sayles & Co. told MarketWatch. “I think the growth outlook for emerging markets is starting to improve in that it’s stabilizing, but I can’t imagine a straight-line rebound. Because I think there are still a number of fear factors that could halt the rally.”
iShares MSCI Emerging Markets ETF