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FX & IR EM STRATEGY Summary

Core Content

This document provides an analysis of fund flows and foreign bond ownership in Emerging Markets (EM), focusing on Asia, CEEMEA, and Latin America (LATAM). It outlines the current trends in equity and bond flows, the impact of macroeconomic factors, and the foreign ownership levels of various EM bonds. The report also includes detailed notes on data sources and disclosures.

Main Points

EM Bond Fund Flows

• Outflows accelerated in the week to 13 November, totaling more than USD 1.8bn.
• Outflows were almost equally split between local and hard currency bond funds (USD 889mn and USD 741mn, respectively).
• The outflow in Mexico in October was USD 23bn, the second-largest year-to-date.
• The outflow likely reflects profit-taking behavior from September and disappointment over Banxico's communication of the end of the easing cycle.
• Inflows were smaller than outflows, indicating cautious investor sentiment towards Mexican bonds.

EM Equity Flows

• Portfolio flows were weak in Asia, with Thailand being the main contributor due to political uncertainty.
• All countries except India saw equity outflows last week.
• All countries except Korea saw bond outflows.
• The overall quantum of flows is modest, suggesting no major shifts in allocation patterns.

Asia Bond Flows

• Foreign ownership of government bonds in the Philippines and Thailand increased in October.
• Thailand saw net inflows of USD 270mn into government bonds.
• India, Indonesia, and Malaysia experienced mixed flows with modest inflows and outflows.
• The foreign ownership of bonds in several Asian countries is still below peak levels.

CEEMEA Bond Flows

• Net inflows by non-residents into Turkish, South African, and Hungarian bond markets.
• These inflows contrast with the large outflows in EM bond funds reported by EPFR.
• The stronger-than-expected NFP and dovish statement by Vice Chair Yellen influenced the mixed flows in the region.

LATAM Bond Flows

• Mexico experienced a net outflow of USD 23bn in October.
• This outflow is likely a continuation of profit-taking from September.
• Banxico's communication about the end of the easing cycle contributed to the disappointment.
• Inflows were smaller than outflows, indicating cautious investor behavior.

Key Information

Key Flows

• EM Bond Funds: USD 1.8bn outflow in the week to 13 November.
• Mexico: USD 23bn outflow in October, second-largest year-to-date.
• Thailand: Net inflow of USD 270mn into government bonds in October.
• India: Net inflow of USD 1,127mn in November, with daily data potentially overestimating net inflows.
• Indonesia: Net inflow of USD 2132mn in October, with data coverage limited to government bonds.

Foreign Bond Ownership

• Philippines: Foreign ownership increased to 20.8% in October.
• Thailand: Foreign ownership reached 17.8% in October.
• India: Foreign ownership of government bonds reached 25.1% in October.
• Korea: Foreign ownership of government bonds reached 53.3% in October.
• Brazil: Foreign ownership of government bonds reached 40.4% in October.
• Mexico: Foreign ownership of government bonds reached 72.7% in October.
• Colombia: Foreign ownership of government bonds reached 6.6% in October.

Charts and Data Sources

• Chart 1: EM equity vs. EM bonds flows.
• Chart 2: Weekly EM bond flows by currency type vs. JPM USD EM bond ETF.
• Chart 3: Equity inflows: latest snapshot.
• Chart 5: EPFR weekly flows in all EM and Asia equities.
• Chart 7: EPFR weekly flows in all EM and LATAM equities.
• Chart 9: Asia foreign bond ownership: latest snapshot.
• Chart 11: CEEMEA foreign bond ownership: latest snapshot.
• Chart 13: LATAM foreign bond ownership: latest snapshot.
• Chart 44: Brazil foreign bond holdings.
• Chart 46: Mexico foreign bond holdings.
• Chart 48: Colombia foreign bond holdings.
• Chart 45: Brazil monthly foreign bond flows.
• Chart 47: Mexico weekly foreign bond flows.
• Chart 49: Colombia monthly foreign bond flows.

Data Notes

• Daily data for equity and debt flows may not reflect actual cross-border capital flows.
• Korea: Data refers to "net purchases" and does not account for redemptions.
• India: FX flows are influenced by SEBI auctions.
• Thailand: Data covers only government bonds.
• Indonesia: Data covers only government bonds.
• Philippines: Data includes all government bonds and equity inflows but lacks a breakdown between the two.

Important Disclosures

• This document is non-independent research and may be subject to conflicts of interest.
• It is not an independent investment research and is not subject to legal requirements for independence.
• It is a marketing communication and should not be relied upon as authoritative.
• BNP Paribas may have a financial interest in the issuers mentioned.
• BNP Paribas may be involved in investment banking services related to the issuers.
• The information and opinions are based on public sources and may not be accurate or complete.
• The report is not an offer or solicitation to buy or sell any securities.
• BNP Paribas may not be liable for any loss arising from the use of this report.
• The report is subject to change without notice and is not intended to be the sole basis for evaluation.
• BNP Paribas is incorporated in France and registered in England and Wales.
• The report is for professional clients in the European Economic Area and not for retail clients.
• The report is approved for publication in the UK, France, and other jurisdictions.

Contacts

Distribution and Legal Information

• Diana Seifert is the contact for distribution in London.
• BNP Paribas may not be liable for any loss arising from reliance on the report.
• This report is subject to change and not intended to be the sole basis for investment decisions.
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