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FX & IR EM Strategy Summary

Core Content

This document provides an analysis of the recent flows in Emerging Markets (EM) equity and bond markets, as well as FX reserve movements, for the period up to February 10, 2014. It is classified as non-independent research and is intended for professional clients only.

Main Points

Equity Flows

• Overall Trends: EM equity funds experienced outflows of over USD 6.3bn for the second consecutive week, indicating a continued shift in investor sentiment.
• Asia: Net portfolio outflows accelerated, led by equities outflows from Taiwan (USD2.6bn) and Korea (USD1.3bn). These outflows were significant, with Taiwan's outflows being 2.5 standard deviations above the average.
• ASEAN: Equity outflows from Thailand were notable, while others showed moderation.
• Korea: Recorded a net inflow of USD 614mn in December, the first positive month since July. Most of the inflows were into MSB (USD 831mn), with minimal inflows into KTB (USD 10mn) and some foreign selling of corporate bonds.
• Charts: Several charts are provided to illustrate the equity inflow trends across different EM countries, with the most recent data showing the net flows in USD million.

Bond Flows

• Asia: Foreign investors sold Thai and Indian bonds, while buying Korean bonds in smaller amounts. Bond outflows were smaller than expected due to the volatility in the global EM asset class.
• CEEMEA: Non-resident outflows from fixed income have moderated, with Hungary seeing net inflows into HGBs of USD 380mn in February.
• South Africa: Experienced moderate outflows of USD 38mn in the first week of February, compared with USD 850mn and USD 766mn in previous weeks.
• Latin America (LATAM): Mexico reported a small outflow of MXN 7.97bn during the week of January 21st to January 27th. Foreign participation in total domestic debt dropped slightly to 41.15%. Colombia had a negligible net inflow of ~48mm COP in January, with a reduction in TES UVR interest.

FX Reserve Accumulation

• Asia: FX reserves showed a monthly change, with some countries experiencing net inflows and others outflows. The data includes both actual reserves and forward book adjustments.
• CEEMEA: FX reserves showed a monthly change, with Hungary and South Africa being highlighted for their movements.
• LATAM: FX reserves in Mexico, Brazil, and Colombia are noted, with some variations in foreign participation and bond ownership.

Key Information

• Equity Outflows: The trend of equity outflows persisted, with significant outflows in Taiwan and Korea, indicating a downward revision in global growth expectations.
• Bond Inflows/Outflows:
  • Asia: Outflows were concentrated in India and Thailand, while Korea saw some inflows.
  • CEEMEA: Hungary had a notable inflow, while South Africa showed a moderation in outflows.
  • LATAM: Mexico had a small outflow, and Colombia had a negligible inflow.
• Foreign Participation:
  • In Korea, foreign participation in total domestic debt dropped slightly to 41.15%.
  • In Colombia, the total foreign participation rate also dropped slightly to 6.4%.
• Bond Ownership:
  • Korea had a foreign ownership of MSB at USD 83.4bn, representing 16.6% of outstanding bonds.
  • Thailand had a foreign ownership of KTB at USD 22.3bn, with a foreign ownership percentage of 17.8%.
  • Hungary had a foreign ownership of HGBs at USD 38.6bn, representing 47.7% of outstanding bonds.
  • Brazil had a foreign ownership of BRL at USD 172.5bn, representing 16.1% of outstanding bonds.

Charts and Data Sources

• Chart 1: All EM equity vs. EM bonds flows.
• Chart 2: Weekly EM bond flows by currency type vs. JPM USD EM bond ETF.
• Chart 3, 4, 5, 6, 7: Equity inflows and flows in EM and Asia.
• Chart 8, 9, 10, 11, 12, 13: Bond inflows and ownership in Asia, CEEMEA, and LATAM.
• Chart 14, 15, 16, 17, 18: FX reserve changes in Asia, CEEMEA, and LATAM.
• Region-specific charts: Include detailed flows and ownership for Korea, India, Thailand, South Africa, Hungary, Mexico, Brazil, and Colombia.

Notes on Data

• Korea: Daily data refers to "net purchases" and does not account for redemptions. Monthly data corrects this.
• India: FX flows are influenced by SEBI auctions, which may not perfectly reflect actual cross-border capital flows.
• Thailand: Data covers government bonds but not BOT bills and corporate bonds.
• Indonesia: Covers all government bonds but not SBI bills and corporate bonds.
• Philippines: Covers all government bonds and equity inflows but not a breakdown between the two asset classes.
• Data Sources: Includes local stock exchanges, central banks, Bloomberg, and BNP Paribas.

Disclaimer

This document is a marketing communication and not independent investment research. It may be subject to conflicts of interest due to interactions with sales and trading. The information is obtained from public sources and is not guaranteed to be accurate or up to date. No liability is accepted for any loss resulting from reliance on the information provided.