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After five weeks of outflows totaling close to $5 billion, exchange-traded funds tracking emerging markets finally got a reprieve. However, investors remain cautious and picky about where they are injecting cash.
Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $228 million in the week ended Oct. 13, compared with losses of $3.1 billion in the previous week, according to data compiled by Bloomberg. India had the biggest inflow, of $132.5 million, led by WisdomTree India Earnings Fund.
Risk traders continue to tout India — the fastest-growing major economy — as a bright spot amid the volatility that has engulfed developing nations this year. As China’s growth-engine status weakens, investors are favoring places where growth is strong or the capacity to provide stimulus is high.
“With a combination of attractive demographics, unique supply & demand dynamics, high barriers to entry, and a stable democracy, India appears well positioned to benefit from steady long-term tailwinds,” said Malcolm Dorson, head of emerging-market strategy at Global X. Markets are also getting more comfortable with the likelihood that incumbent prime minister, Narendra Modi, will be re-elected next year, becoming a “major catalyst for economic and fiscal continuity.”
Earlier in October, the category of exchange-traded funds tracking emerging markets saw the biggest weekly outflow in more than a year as traders spurned risky assets. Concern over higher-for-longer interest rates in the US made investors wary, while the conflict in the Middle East added to concerns last week.
Saudi Arabia reported the biggest outflow across developing nations, of $74.3 million, last week following withdrawals from iShares MSCI Saudi Arabia. Investors will continue to watch how the conflicts develop as the US and its allies make a diplomatic push to prevent the war from engulfing the wider region.
So far this year, inflows have totalled $7.14 billion.
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