Investors pulled money from exchange-traded funds that buy Chinese stocks last week amid growing concern over the country’s economy, while they loaded up on emerging-market debt as the US Federal Reserve nears the start of its easing cycle.
The KraneShares CSI China Internet Fund, known by the ticker KWEB, saw US$238 million in outflows last week, its biggest weekly outflow since August 2022, as Beijing struggles to foster a rebound in growth.
“Investors have been avoiding China,” said Brendan McKenna, an emerging markets economist and FX strategist at Wells Fargo. “Unless Chinese authorities can give significantly more clarity on what policy will be, China’s local markets are likely to be avoided for the remainder of this year, possibly even longer.”
The iShares China Large-Cap ETF also recorded outflows, with investors withdrawing almost US$55 million last week marking an 11 continuous weeks of redemptions.
As concern over the outlook for China persist, investors are looking for other opportunities to secure returns amid expectations the Federal Reserve will kick-start its easing cycle in September.
The iShares JP Morgan USD Emerging Markets Bond ETF, known by the ticker EMB, recorded US$238 million in inflows last week, while the Janus Henderson Emerging Markets Debt Hard Currency ETF recorded US$157 million of new money coming in.
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Why investors can expect more market volatility after recent global stock sell-off
Why investors can expect more market volatility after recent global stock sell-off
“The Fed’s pivot toward rate cuts is sparking some risk-on behaviour, especially in EM,” McKenna said.
“Lower EM rates can support emerging-market fixed income, especially if select EM central banks have more policy space to also continue or start cutting rates.”
The US$16.1 billion iShares MSCI Emerging Markets Ex-China ETF, known by its ticker EMXC, also continues to draw interest among investors looking for riskier assets, while avoiding China, with the fund garnering about US$194 million of inflows last week.
Emerging market assets rallied on Friday after Federal Reserve Chairman Jerome Powell said the time to adjust monetary policy has come, prompting a risk-buying spree across global markets.
Inflows to US-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totalled US$554.7 million in the week ended August 23, compared with gains of US$20.2 million in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled US$3.57 billion.
