The last month of 2016 saw large inflows into developed market equity ETFs listed in Europe, but emerging markets suffered as investors became concerned about the impact of Donald Trump’s US presidency on companies in this part of the world.
European-listed Developed Markets North America Large Cap ETFs saw inflows of €775m, while Global Markets Large Cap ETFs took in €1.2bn, according to the latest figures from TrackInsight.
Overall, all equity categories apart from emerging markets saw inflows as investors turned bullish on global stocks, but they took money out of Emerging Markets ETFs on worries about the outlook for the region.
December saw investor confidence soar following the election of Donald Trump as the 45th President of the United States, with many market participants expecting his proposed policies to provide a boost to the US stock market, and other developed regions. The S&P 500 index is up 6% since the election on 9 November.
Bank of America Merrill Lynch’s December Fund Manager Survey showed investors becoming more bullish, and cash levels dropping as a result, to 4.8% in December from 5% in November. Investor expectations of global growth jumped to a 19-month high, to net 57% of investors believing growth will be stronger, compared to net 35% in November.
As a result of this confidence, allocations to US equities by asset managers jumped to a two-year high, to a net 15% overweight compared to net 4% overweight in the previously month.
Meanwhile, Europe Large Cap ETFs saw the strongest inflows in the equity category, of €1.6bn in December 2016, as investors’ fears over a potential breakup of the EU and the consequences for the stock markets faded for the time being.
But allocators have not been as positive on emerging markets, fearing headwinds from Trump’s protectionist policies and continued US dollar strength in 2017.
This is reflected in the European ETF flows, with Emerging Markets shedding €853m during the month of December as investors turned away from the asset class.
Of particular concern is the danger Trump could start a trade war with China, while his plans to curb taxes and increase infrastructure spending could lead to higher interest rates and bond yields, hurting emerging markets in the process.