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EM Fixed Income Flows Update Summary

Core Content

This report provides an overview of the recent trends in Emerging Markets (EM) fixed income flows and credit issuance. It highlights the changes in fund flows, the performance of different fund types, and the dynamics of credit supply, including ESG-labelled bonds and sovereign issuance.

Main Points

EM Fixed Income Flows

• Overall Flows: EMDD funds experienced outflows of US$256m this week, compared to US$26m in the previous week.
• Hard Currency Funds: Outflows decreased significantly from US$1.1bn to US$230m, driven by sovereign funds turning to inflows of US$152m (from US$885m outflows last week).
  • Global-mandated funds saw outflows drop to US$54m from US$969m.
  • Regional/country funds had outflows of US$176m (from US$107m a week ago).
  • ETF outflows fell sharply to US$22m from US$744m last week, contributing to the overall improvement.
• Local Currency Funds: Inflows dropped from US$1.1bn to US$33m.
  • Global-mandated funds had outflows of US$45m (from US$20m).
  • Regional/country funds saw inflows of US$79m (from US$1.2bn).
  • Non-ETF funds turned to outflows of US$72m (from US$855m inflows).
• ESG Funds:
  • Hard currency ESG funds had outflows of US$114m.
  • Local currency ESG funds saw inflows of US$23m.
  • Blended currency ESG funds experienced outflows of US$17m.
• Year-to-Date Returns:
  • Hard currency returned 0.3%.
  • Local currency returned -0.2%.

EM Credit Issuance

• Total Issuance: US$14.2bn this week, compared to US$57.5bn last week.
• Sovereign Issuance:
  • US$1.2bn this week, with YTD sovereign issuance at US$34.2bn, the second highest on record.
  • Key sovereign issuers this week: Benin (US$500m 2041) and Angola (US$700m 2030 tap).
• Potential Issuers:
  • IG space: Mexico (EUR), Israel, the Philippines, Poland (USD), Ras Al-Khaimah, Romania.
  • HY space: Morocco, Oman, Turkey.
  • Other potential issuers: Brazil, Colombia, the Dominican Republic, Panama.
• ESG Issuance: US$3.0bn in ESG-labelled bonds this week, bringing YTD ESG issuance to US$7.6bn.

Key Information

• Flow Dynamics: The significant reduction in ETF outflows was a key driver of improved flows in the week.
• Regional Performance:
  • AxJ: Outflows of US$223m.
  • LatAm: Flows were flat.
  • CEEMEA: Inflows of US$108m.
• Sovereign Issuance:
  • The YTD sovereign issuance is US$34.2bn, US$5.0bn above the same period in 2023.
  • The report highlights the potential for further issuance from various countries, as listed in the "EM sovereign issuance sources" table.
• ESG Trends: ESG-labelled bond issuance has been a growing component of EM credit supply, with YTD ESG issuance reaching US$7.6bn.

Conclusion

The EM fixed income market has seen a notable improvement in fund flows, primarily due to reduced ETF outflows and a shift in sovereign fund dynamics. While local currency flows have declined, they remain a significant portion of the market. ESG issuance continues to grow, indicating increasing interest in sustainable finance. Sovereign issuance remains robust, with several countries planning or having issued bonds in the IG and HY spaces. The report also includes detailed data tables and charts for further analysis, along with important disclosures and analyst certifications.