After a dry spell the previous year, emerging market bond and equity funds saw significant inflows in January, helped by China’s reopening and easing global inflation concerns.
Refinitiv Lipper data, which includes information on over 33,700 emerging market (EM) funds, shows that EM stock funds received $13.2 billion in January while EM bond funds received $11.36 billion. They were both the largest inflows in over a year.
The aggregate net outflow from EM bond funds in 2022 was $26.26 billion.
This year, analysts predict that lower valuations, a declining dollar, the peaking of Fed rate pricing, and lower U.S. Treasury yields will support EM assets.
According to Josh Rubin, portfolio manager at Thornburg Investment Management, “Even as global growth slows, we believe EM equity valuations have room to improve in 2023,” driven by lower inflation, a peaking U.S. dollar, more clarity regarding significant political events, and structural changes within the region.
“A rebound in the semiconductor and hardware technology sectors should benefit Taiwan and Korea. Next year, Brazil might be the first significant EM country outside of China to start an easing cycle.”
Refinitiv data predicts that developing market companies will expand their profits by 11.9% in 2023, outpacing both American companies’ growth of 8.9% and European companies’ decline of 2.2%.
iShares MSCI Emerging Markets ETF and BlackRock Emerging Markets Fund; Inst both received over $1 billion in January, while iShares Core MSCI Emerging Markets ETF and iShares JPMorgan USD Emerging Markets Bond ETF each received $3.2 billion and $2.4 billion, respectively.