Investors have yanked cash from emerging market ETFs ahead of central bank decisions, although the region has seen a little relief around the Trump-Kim summit.
Emerging markets to be hit by higher interest rates
As investors await for decisions on monetary policy from the Federal Reserve and the European Central Bank, Bloomberg found investors redeemed $1.47 billion from developing country ETFs in the past week to 11 June.
Data from TrackInsight also backs up this trend, with outflows of $1.6 billion from emerging markets over the past month to 12 June.
The Fed announcement on 13 June is unlikely to send shockwaves through the market although it provides little motivation for US investors to return to developing nation ETFs anytime soon. The Fed is expected to raise rates by 0.25% to 2% – either way, the Fed has already indicated several rate hikes this year alone.
Meanwhile the ECB is considering fully ending its quantitative easing program in September, although it’s unlikely that the base rate will be raised as the economy still relies on low interest rates.
Summit summons small relief
But the summit in Singapore this week between Donald Trump and Kimg Jong-un has seen ETF traders quickly push money into certain Asian ETFs, hoping geopolitical winds will blow in their favour.
Trump and Kim pledged to work together to bring about the denuclearisation of the Korean peninsula, without specific measures or timeframes being set. The meeting was arguably the most progress between the two nations since 2000, when former secretary of state Madeleine Albright met North Korean officials. It comes just weeks after Kim cancelled the 2018 summit and months after analysts worried about nuclear war.
Bloomberg found that The iShares MSCI All Country Asia ex-Japan ETF (AAXJ) took in $195 million on Monday, the day before the summit, the most for a single day since April, with its third largest position being South Korea-based Samsung Electronics.
The inflows provided some relief after AAXJ, a $4 billion fund, saw outflows of around $111 million year to date.