So far this year, emerging market bond ETFs have experienced $3.8 billion in net inflows, or more than two-and-a-half times the amount for the same period last year. EMB, alone, brought in $1.5 billion in the first two weeks of July after the United Kingdom’s so-called Brexit vote to leave the European Union.
[related_stories]“People are looking for beta [returns from the asset class rather than individual assets],” Trigo Paz said. “They are just buying the index now and leaving fine-tuning until later.”
Enticing greater investment dollars, economic fundamentals and idiosyncratic risks in the emerging markets are improving, such as rising oil and commodity prices that are supporting major emerging economies, like Brazil and Russia. Additionally, concerns over China downturn, which drove bearish positions last year, have diminished.
“The fundamental rationale box is ticked,” Trigo Paz added.
Meanwhile, central banks are more likely to maintain loose monetary policies in a post-Brexit world, fueling the ongoing search for yield in a low-rate environment. The Fed has kept its rate decision on hold, and the Bank of England, European Central Bank and Bank of Japan are even considering additional measures to prop up flagging growth.