(Bloomberg) -- 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 Federal Reserve nears the start of its easing cycle.
The KraneShares CSI China Internet Fund, known by the ticker KWEB, saw $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 $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 that the Federal Reserve will kickstart its easing cycle in September. The iShares J.P. Morgan USD Emerging Markets Bond ETF, known by the ticker EMB, recorded $238 million in inflows last week, while the Janus Henderson Emerging Markets Debt Hard Currency ETF recorded $157 million of new money coming in.
“The Fed’s pivot toward rate cuts is sparking some risk-on behavior, 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 $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 $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 U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $554.7 million in the week ended Aug. 23, compared with gains of $20.2 million in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $3.57 billion.
- Stock ETFs expanded by $193.7 million.
- Bond funds rose by $361.1 million.
- Total assets rose to $349.9 billion from $347.4 billion.
- The MSCI Emerging Markets Index closed up 0.6 percent from the previous week at 1,100.68 points.
- India had the biggest inflow, of $146.5 million, led by iShares MSCI Emerging Markets ex China.
- China/Hong Kong had the biggest outflow, of $241.6 million, following withdrawals from KraneShares CSI China Internet.
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Following are tables detailing net flows for emerging-market ETFs in US dollars. The data include the holdings-weighted allocations from multi-country funds, as well as country-specific funds. Latest and historic flows are allocated using latest fund weightings (figures in USD millions unless otherwise stated):
Regional Summary
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Americas
Asia Pacific
Europe, Middle East & Africa
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