(Bloomberg) -- Investors piled money into exchange-traded funds that buy emerging-market bonds on Friday amid optimism that developing-nation debt will get a boost from a highly anticipated Federal Reserve rate cut this week.
Two of the biggest ETFs tracking EM bonds saw a cash infusion, according to data compiled by Bloomberg. The $16 billion iShares J.P. Morgan USD Emerging Markets Bond ETF received $46.3 million in inflows on Friday, while the Vanguard Emerging Markets Government Bond ETF recorded $32.9 million in inflows.
“Investors are becoming more optimistic about a long-duration, high-carry asset class ahead of the Fed cutting rates this week and many are buying EM debt,” said Jared Lou, portfolio manager for emerging-market debt at William Blair Investment Management in New York.
Rising odds of a half-point rate cut on Wednesday is spurring additional risk appetite across the globe. Such a move could trigger a search for more attractive yield opportunities across developing markets, said Brendan McKenna, an emerging markets economist and FX strategist at Wells Fargo.
“If investors are anticipating 50 bps of easing this week they would want to proactively get EM exposure ahead of the Fed meeting,” he said.
Expectations of Fed easing are helping to allay fears about a potential US recession that would ripple through the region. With expectations of lower rates in the US, central banks across the developing world will also have more room to loosen their monetary policies.
Meanwhile, outflows from U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $195.9 million in the week ended Sept. 13, compared with losses of $93.7 million in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $3.72 billion.
- Stock ETFs contracted by $277 million.
- Bond funds rose by $81.1 million.
- Total assets rose to $346.1 billion from $340 billion.
- The MSCI Emerging Markets Index closed up 0.7 percent from the previous week at 1,082.3 points.
- India had the biggest outflow, of $172.3 million, following withdrawals from iShares MSCI India.
- Mexico had the biggest inflow, of $40.8 million, led by iShares MSCI Mexico.
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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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