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FX & IR EM STRATEGY Summary

Core Content

This document provides an overview of the flow of capital into Emerging Market (EM) bond and equity funds, as well as FX reserve accumulation, for the period ending April 30, 2014. It also includes region-specific analyses for Asia, CEEMEA, and Latin America (LATAM), highlighting trends in both equity and bond markets. The data is sourced from EPFR, BNP Paribas, Bloomberg, and local financial authorities, with caveats provided for the accuracy and interpretation of the information.

Main Points

Global EM Fund Flows

• Bond Funds: Inflows into EM bond funds continued at a moderate pace, totaling USD 557mn in the week to April 30th, according to EPFR data.
• Equity Funds: EM equity funds saw small inflows of just under USD 100mn during the same period.
• Regional Trends:
  • Asia: Equity inflow momentum weakened due to a holiday-affected week, but bond inflows improved (except Thailand). India saw its first weekly bond inflow after three weeks of outflows.
  • Latin America: Bond inflows increased to USD 105mn, reducing the 1-month rolling inflow to USD 934mn. Equity markets saw outflows in Mexico and inflows in Brazil.
  • CEEMEA: Hungary and South Africa had net inflows of USD 576mn and USD 354mn, respectively, into local debt markets. However, increased net issuance led to slight declines in non-resident ownership.

Equity Flows

• Asia: Equity inflows varied across countries, with notable inflows in India, Korea, and Indonesia.
• CEEMEA: Data on equity flows is limited, but there is a focus on bond inflows.
• LATAM: Brazil continued to attract inflows, while Mexico saw outflows. The 1-month rolling equity inflow into Brazil and Mexico decreased from USD 1.75bn to USD 1.24bn.

Bond Flows

• Asia: Bond inflows increased in several countries, including Korea and Indonesia, with India's inflow being a notable recovery from prior outflows.
• CEEMEA: Bond inflows were mixed, with Hungary and South Africa showing net inflows, while other countries saw outflows or stable flows.
• LATAM: Brazil had a small inflow of BRL 0.7bn, reducing non-resident ownership to 17.3%, which is still higher than the level from March last year.

Key Information

FX Reserve Accumulation

• Asia: FX reserves showed a mix of trends, with some countries like India and Korea experiencing growth.
• CEEMEA: FX reserves were monitored, with data indicating varied levels of accumulation.
• LATAM: FX reserves were also tracked, showing different dynamics across the region.

Regional Analysis Highlights

• Asia:

  • Equity inflow momentum faded in a holiday-affected week.
  • Bond inflows improved, with India's recovery from outflows being significant.
  • Korea and Indonesia saw increased bond inflows.
  • Malaysia had a small bond outflow due to BNM bills, but foreigners bought USD 600mn of MGS & GII.
  • Thailand's data only covers government bonds, excluding bills and corporate bonds.

• CEEMEA:

  • Hungary and South Africa had net inflows into local debt markets.
  • Increased net issuance led to slight declines in non-resident ownership.
  • Data sources include CBRT, SARB, and local financial authorities.

• LATAM:

  • Latin America bond inflows increased to USD 105mn, with Brazil continuing to attract inflows.
  • Mexico saw equity outflows, while Brazil had a positive inflow.
  • Brazil's non-resident ownership in local bonds dropped to 17.3%.

Appendices and Contact Information

• Data Sources and Caveats:

  • Daily equity flows are sourced from local stock exchanges and Bloomberg.
  • Daily debt flows may not accurately reflect net investment due to the exclusion of redemptions.
  • Inflows are often tied to government bond auctions and may not match actual cross-border flows.

• Strategy Contacts:

  • CEEMEA: Piotr Chwiejczak, Dina Ahmad, Erkin Isik
  • Asia: Mirza Baig, Rohit K Garg, Jasmine Poh, Yii Hui Wong, Jennifer Kusuma
  • LATAM: Gabriel Gersztein, Thiago Alday, James Z Hao

• Distribution and Legal Disclaimer:

  • The document is a marketing communication and not independent investment research.
  • It is subject to legal disclaimers and is intended for professional clients only.
  • BNP Paribas may have conflicts of interest and is involved in various financial activities, including market making and investment banking.

Conclusion

The document outlines the performance and trends of EM bond and equity fund inflows, with a focus on Asia, CEEMEA, and LATAM. It emphasizes the moderate pace of inflows, regional variations in performance, and the importance of considering net issuance and FX reserves when interpreting ownership data. The report is a non-independent marketing communication, and users are advised to exercise caution and consult with financial professionals before making investment decisions.