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Summary of FX & IR EM Strategy Report (21 July 2014)

Core Content

This report provides an overview of the latest portfolio flows and foreign ownership trends in Emerging Markets (EM) equity and bond markets, as well as FX reserve accumulation across key regions: Asia, CEEMEA, and Latin America (LATAM).

Main Points

Equity Flows

• Overall: EPFR data shows net inflows into both EM equity and bond funds of approximately USD 910mn each for the week ending 16th July 2014.
• Asia: Debt inflows were significantly higher than equity inflows. There was a rotation of equity flows from Taiwan to Korea, driven by the weaker won. Inflows into Thailand and Korea accelerated, while inflows into India slowed.
• Korea: Net inflows into Korean bonds reached USD 434mn in June, with KTB bonds dominating. Foreign investors sold USD 535mn of MSB bonds.
• India: FX flows mainly occur during monthly auctions, and daily data may not reflect actual cross-border flows.
• Thailand: Government bond ownership data is available, but does not capture flows to BoT bills and corporate bonds.
• Philippines: Data is based on BSP weekly data, excluding corporate bonds.
• LATAM: Portfolio flows were mixed, with bond funds seeing inflows of USD 254mn and equity funds experiencing outflows of USD 162mn. Over four weeks, the net inflow was only USD 67mn.
• Mexico: Highlighted as a key inflow for bonds, with USD 157mn net inflow last week.
• Peru: Bond inflows were decent relative to other countries, coinciding with a 25bp rate cut by BCRP.

Bond Flows

• Overall: Local currency EM bond funds saw net outflows of USD 9mn, while hard and blend currency funds attracted the bulk of inflows.
• Asia: Inflows into Thailand and Korea accelerated, while India saw a slowdown. Foreign ownership in various currencies is detailed, with notable percentages of outstanding bonds.
• CEEMEA: In Turkey, net foreign outflows from the bond market were limited at USD 0.3bn, despite a large decline in repos. Outflows from 2014-2015 bonds were TRY 1.8bn, while 2019 bonds had inflows of TRY 0.8bn. Equity holdings increased by USD 0.1bn.
• LATAM: Bond inflows were positive, with Mexico as the main highlight, while equity flows continued to show outflows.

Key Information

Chart Highlights

• Chart 1: Shows net inflows into EM equity and bond funds.
• Chart 2: Compares EM bond flows by currency type to JPM USD EM bond ETF.
• Chart 3-5: Highlight equity inflows in different regions.
• Chart 8-37: Provide detailed insights into bond inflows and ownership across Asia, CEEMEA, and LATAM.
• Chart 14-19: Show FX reserve accumulation trends in Asia, CEEMEA, and LATAM.

Data Sources and Caveats

• Equity and bond flows are sourced from EPFR, BNP Paribas, local stock exchanges, and central banks.
• Some data is based on daily or monthly flows, and may not reflect actual cross-border capital flows due to redemption or auction timing.
• For example, Korea's daily data refers to "net purchases" rather than "net investment", which may overstate inflows.

FX Reserve Accumulation

• Asia: FX reserves showed a positive trend, with notable inflows into Thai and Korean bonds.
• CEEMEA: FX reserves in Turkey showed a limited outflow, while other countries had varied trends.
• LATAM: FX reserves showed mixed results, with Mexico and Brazil being key markets.

Contact Information

EM Strategy Contacts

Distribution Contact

• Danielle Catananzi, London. Tel: 44 20 7595 4418, Email: danielle.catananzi@uk.bnpparibas.com

Important Disclosures

• This document is a marketing communication and not independent investment research.
• It may be subject to conflicts of interest due to interaction with sales and trading.
• No liability is accepted for any loss arising from reliance on the report.
• All information is based on public sources and may not be accurate, complete, or up to date.
• The report is for professional clients only and is not intended for retail clients.
• BNP Paribas may have financial interests in the issuers or persons mentioned, and may act as an adviser, manager, or underwriter.

Legal and Regulatory Notes

• The report is non-independent and has been approved for publication in the UK by BNP Paribas London Branch.
• In France, it is approved by BNP Paribas SA.
• In Germany, it is distributed by BNP Paribas London Branch or BNP Paribas Niederlassung Frankfurt am Main.
• In the US, it is distributed to major institutional investors only by BNP Paribas Securities Corp.
• In Israel, BNP Paribas does not hold a licence to offer investment advice.
• In Japan, the report is distributed to certain financial institutions only.
• In Hong Kong, the report is regulated by the Securities and Futures Commission.
• In Australia, it is directed to wholesale clients only.
• In Singapore, it is regulated under the Securities and Futures Act.
• In Brazil, it is for information purposes only.