Washington, D.C., July 28, 2015 - Flows to emerging market funds have been particularly volatile amid concerns about Chinese equity markets, falling commodity prices and shifting perceptions on the timing of the first Fed rate hike, according to the IIF's latest Portfolio Allocation Trends report.Portfolio Allocation Trendsreport was formerly known as theTrends in Investment Fund Portfolio Allocation.
"The share of emerging market assets in fund investors' portfolios has dropped to a post-crisis low," said Sonja Gibbs, director of capital markets at the IIF.' "This month's volatility in Chinese equity markets has actually masked the broader EM picture. Flows to Chinese onshore equity funds surged in early July, reflecting the impact of recent stimulus measures, which encouraged Chinese fund managers to use their own capital to buy shares. Stripping out China, EM mutual funds and ETFs have actually seen net outflows of $2.3 billion month to date."'
The IIF identified additional key trends below:
- U.S and Euro Area investors leery of EM stocks and bonds: Despite more appetite for some risk assets - notably global equities and high-yield bonds - through much of July, investors remained cautious about emerging market assets in general.
- Indian refuge: Global fund investors continued to increase allocations to Indian equities in July, with portfolio weightings for India reaching an all-time high of over 9 percent.
- Substantial redemptions from commodity funds: Amid renewed pressures on commodity prices, outflows from dedicated commodity funds accelerated in July. Global fund investors have withdrawn some $1.5 billion from commodity funds this month thus far, on track to be the largest net outflow since March 2015.
- U.S. mutual funds and ETFs saw flight-to-quality flows in July.' On the equity side, after withdrawing more than $9 billion in June, fund investors have invested around $13 billion in U.S. stocks in July to date - helped by high expectations of over $5.3 billion in July to date versus just $2.8 billion in June.
- The July agreement between Greece and its Euro Area creditors triggered more allocation to Euro Area equities. Although both core and periphery equity funds benefited from a broad-based recovery in Euro Area stock markets in the first weeks of July as the Greek deal took shape, fund investors took on significantly more exposure to core Euro Area equities relative to the periphery.
- Big picture - gradual shift out of bonds into equities: Our valuation-adjusted allocation series suggest the start of an entirely new "llocation" cycle. Having reduced "real" exposure to equities since 2013, fund investors began to increase the level of equities in their portfolios in volume terms for the first time in over two years, helped by expectations of gradual acceleration in global growth.
The Institute of International Finance is the global association of the financial industry, with close to 500 members from 70 countries. Its mission is to support the financial industry in the prudent management of risks; to develop sound industry practices; and to advocate for regulatory, financial and economic policies that are in the broad interests of its members and foster global financial stability and sustainable economic growth. Within its membership IIF counts commercial and investment banks, asset managers, insurance companies, sovereign wealth funds, hedge funds, central banks and development banks. For more information visit www.iif.com.
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