Surging fund flows underpin China equities
Fund flow data from EPFR Global show a rebound in sentiment on China equities. Between 2014 and 2017, China suffered net outflows of USD39.5b. But all this changed in 2018 as China registered net inflows of USD34.8b – reversing the bulk of prior years’ outflows. The bottoming out of sentiment in mid-2017 coincided with the trough in corporate earnings.
Robust China fund flows is a function of broader EM optimism. The strong flow of funds into China did not happen in isolation. It reflects a gradual rebound in risk appetite for the broader Emerging Markets (EM) space as investors pare their exposure to Developed Markets (DM). To put things in context, we tracked the flow of funds into these regions over the past few years. Between 2014 and 2017, DM equities saw net inflows totalling USD319.6b, while EM registered net outflows totalling USD34.1b. The exit of funds from EM came amid concern over the US Federal Reserve’s normalisation of monetary policy.
However, 2018 marked a turning point.
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