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FX & IR EM Strategy Summary

Core Content

This document provides an overview of the foreign investment flows into emerging market (EM) equity and bond funds, as well as the changes in foreign exchange (FX) reserves, in the week to 26 February 2014. It highlights the performance of different EM regions and their respective bond and equity flows, as well as the impact of FX reserve changes on market dynamics.

Main Points

EM Fund Flows

• Equity Funds: The week to 26 February 2014 saw a significant increase in outflows, with over USD 3bn in total, almost double the previous week's outflows.
• Bond Funds: Both hard currency and local currency bond funds experienced outflows, with hard currency bond funds losing USD 860mn and local currency funds USD 890mn.

Asia

• Indonesia: Attracted the strongest equity and bond inflows in February since 2013, with USD 659mn in equity and USD 1.3bn in bonds.
• Korea: Experienced a slight increase in equity inflows but not enough to offset bond outflows.
• Philippines: Had its first week of bond inflows in February, though the amount was small (USD 105mn).
• Thailand: Continued to see modest outflows in both equity and bond markets.
• Bond Ownership: Indonesia's foreign ownership of government bonds reached 32.5% of outstanding, while Malaysia's foreign ownership of government bonds and Islamic bonds reached 54.8%.

CEEMEA

• Turkey: Foreign bond holdings of TURKGBs decreased by USD 0.2bn, primarily due to declining repos. However, SAGBs saw their largest weekly inflow since September 2013, at USD 585mn.
• FX Reserves: The CBRT's gross FX reserves increased by USD 1bn to USD 124bn, with net FX reserves at USD 41bn, driven by the Treasury's eurobond issuance.

LATAM

• Mexico: Benefited from a Moody's upgrade, leading to increased inflows. Foreign ownership reached 41.78% of total domestic debt outstanding.
• Brazil: Reported BRL 8.8bn in bond inflow, a notable improvement from previous months. Foreign holdings now represent 17.2% of total outstanding domestic debt.
• Colombia: Experienced inflows in February, with foreign bond holdings increasing.

Key Information

• Equity Flows: The latest data for 28 February 2014 shows varying levels of inflows and outflows across different countries. For example, KRW had a 5-day equity inflow of USD 636mn, while THB had a net outflow of USD 81mn.
• Bond Flows: The bond flows for February show a mix of inflows and outflows, with Indonesia leading in inflows for both equity and bonds. The Philippines had a small bond inflow of USD 105mn.
• FX Reserves: The report includes monthly changes in FX reserves for Asia, CEEMEA, and LATAM. These reserves are influenced by various factors, including bond issuance and currency movements.
• Data Sources: The data is sourced from EPFR, BNP Paribas, Bloomberg, and local stock exchanges, with caveats about the accuracy and completeness of the information.
• Regional Analysis: Each region (Asia, CEEMEA, LATAM) is analyzed separately, with specific focus on bond inflows, equity flows, and FX reserve changes.

Summary Table

Conclusion

The document outlines the current state of EM flows, highlighting both inflows and outflows across different asset classes and regions. It emphasizes the importance of monitoring these flows and the impact of FX reserve changes on market dynamics. The data provided is essential for understanding the investment trends in EM markets and making informed decisions.