GEM Funds Witnessed Second Weekly Outflow: UBS

GEM Funds Witnessed Second Weekly Outflow: UBS

Aided by A-share ETFs, aggregate GEM funds saw outflows of $2.15 billion for the week ending June 17th, marking a second straight weekly outflow, notes a report from UBS.

Howard Park and Geoff Dennis of UBS in their June 19, 2015 research report titled: “More Heavy Selling in China Drives GEM Outflows”, point out that outflows continue for both GEM ETFs and LO funds.

A-share ETFs dominate outflows

According to the UBS report, despite reporting outflows of $2.15 billion last week, aggregate GEM funds’ outflows were far lighter than the near-record $9.27 billion outflow a week earlier. Delving deep into the flow data, the analysts note China ETFs continue to dominate these weekly flows, with over 90% ($2.00 billion) of the $2.15 billion outflow coming from A-share ETFs.

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Park and Dennis point out that last week, dedicated GEM funds witnessed inflows of just $48 million, but regional funds all reported outflows. For instance, Asia ex-JP funds had a $2.06 billion outflow, followed by LatAm (-$114 million, outflows in 31 of last 33 weeks) and EMEA funds (-$23 million, 7th consecutive outflow):

4WMA fund flows GEM Funds

Analyzing country-wise flows, the analysts point out that among MSCI GEMs countries, the biggest inflows were to Taiwan, Korea and Brazil, while the biggest outflows were from China ($2.08 billion), India and Mexico.

Long-Only GEM funds too witnessed outflows

Park and Dennis point out that the pace of redemptions from GEM ETFs slowed sharply compared to last week’s record $8.98 billion outflow.

GEM Funds flows

The analysts note GEM Long-Only funds had outflows totaling $371 million, a seventh straight outflow, though this latest week was in-line with the average during the current streak ($315 million).

Interestingly, despite recent steady outflows, LO fund flows have held up relatively well in 2015, with $22.35 billion of total GEM outflows coming from ETFs compared to $6.77 billion from LO funds. Providing a comparative analysis for last year, the analysts point out that in 2014, $16.4 billion of total GEM outflows were from LO funds as against $6.64 billion from ETFs.

Focusing on YTD flows, the UBS analysts point out that aggregate GEM funds have witnessed YTD outflows totaling $29.13 billion, representing 3.3% of AUM, showing a 27% increase. As can be deduced from the following graph, all fund groups witnessed YTD outflows, led by Asia ex-JP, dedicated GEM, LatAm, and EMEA.

YTD flows GEM Funds

However, excluding flows from A-Share ETFs, YTD inflows into aggregate GEM and Asia ex-Japan funds stand at $1.16 billion and $11.12 billion, respectively.

Park and Dennis also provide insight into their country positioning scorecard that aims to identify the most and least “crowded” markets within EM equities.

Country positioning GEM FundsFinally, the UBS analysts point out that based on their model, positioning appears more crowded in Brazil, Chile and Korea, while Peru, China, Czech Republic appear less crowded. Overall, they note the most crowded EM markets are, in order, India, Qatar, Russia, Taiwan and Peru.

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