Sunday, August 7, 2016

Emerging Market Debt Fund Inflows Hit 5-Week Record

Whenever emerging markets felt a little too frothy this last decade we'd trot out a bit of Chancellor profundity:

"Emerging market speculation tends to appear at a juncture in the economic cycle when 
declining yields on domestic bonds combine with an excess of capital to make 
foreign investments particularly attractive."
-Edward Chancellor
Chapter 4, Fool's Gold: The Emerging Markets of the 1820's

From Barron's Emerging Markets Daily, Aug. 5:
It’s the lust for yield: emerging market debt funds have seen the greatest five-week inflow on record.
The price of the iShares J.P. Morgan USD Emerging Markets Bond exchange-traded fund (EMB) is up today, and is higher by nearly 10% this year. The fund pays a yield of near 5.2%. The iShares MSCI Emerging Market ETF (EEM) is up 13% this year and sports a 1.5% yield.
Fund flow history through Aug. 3, shows record emerging market debt inflows this year are well below 2010 levels
Bank of America Merrill Lynch reports $16.6 billion in net inflows to emerging market debt funds in the past five weeks through Wednesday. And it adds that the inflow streak into emerging market equity funds isn’t too shabby either, with the longest inflow trend in two years. 

What to do next? BofA Merrill observes that its wealth management customers continue to accumulate a “barbell:” deflationary assets (low-volatility, high-quality and utility stocks) and inflationary assets (gold, emerging markets and inflation-protected U.S. Treasuries (TIPS)). They are sellers of equities in Europe and Japan.

In the latest weekly calculations through Aug. 3, $2.2 billion in total flowed into emerging market debt funds. As for stocks: $1.4 billion flowed into emerging market equity funds marking the fifth straight week of the positive trend and the longest inflow streak since September 2014.
What should investors do now? BofA/ML Chief Investment Strategist Michael Hartnett and Strategist Brian Leung write:...MORE