As the emerging market and non-U.S. trade has unwound and fears have intensified over a trade war, investors have fled global stocks and returned to the U.S., where funds have seen $6.3 billion in inflows. The iShares emerging market ETF has seen $5.4 billion in outflows in June, the most of any fund, according to ETF.com.
“U.S. dollar strength and persistent underperformance seem to be driving fund investors away from non-U.S. equities,” TrimTabs said in a note.
Interestingly, one of the regions suffering the lowest level of investor fear is China, where funds have seen a net inflow of $150 million even though the nation’s main stock index has plunged into a bear market, defined as 20 percent below its most recent high.
For investors, then, the main question may be whether the outflows elsewhere are signaling something more ominous or are merely setting up another buying opportunity as valuations get cheaper.
“Cumulative flows for the year [across asset classes] are still up [thanks] to strong inflows in January. Russia and [South] Africa are now driving the outflows, as the most crowded markets at the eve of recent weakness,” Gabriele Foa, cross asset strategist for emerging markets at Bank of America Merrill Lynch, said in a note. “Selected opportunities are emerging thanks to weak levels.”
In fact, if the trend holds up through the end of June, it will make the first time global equities have seen net outflows since November 2016, according to TrimTabs.
Investors, however, remain bullish on Latin America, which has seen $30 million in inflows to ETFs in June even though the funds have lost 10 percent in June and more than 25 percent since May.