Where The Money Is Going: Record Inflows Into Emerging Markets, Longest Ever Outflows From Europe

One week ago we showed a stunning chart showing the panic among the investing public to allocate funds to emerging markets, courtesy of central banks, which had just seen the largest 4 week inflows on record.

There has been no change this week, with investors plowing money into emerging market equity funds at a staggering rate, hitting a 58-week high as "financial repression" and record low interest rates push the search for yield to truly unprecedented levels.

As a reminder, it was the unwind of the EM trade last year that was among the catalysts of the late 2015 market swoon; however with dollar strength firmly contained for now, investors are no longer concerned about this eventuality and are rushing precisely where the panic selling started just about one year ago.

As BofA notes, emerging market equity funds saw inflows of $5.1bn during the week ending August 17, the seventh straight week of inflows as shown in the FT chart below, bringing the 7 week total to $15 billion. However, BofA notes a divergence between $8.4bn ETF inflows & $3.3bn mutual fund outflows.

 

As BofA also adds, it is "important for traders to note BofAML’s contrarian EM Trading Rule requires $5bn in inflows in next 2-3 weeks to trigger EM “sell” signal."

On the debt side, BofA notes that EM debt funds continued to be the "largest beneficiaries of globally accommodative monetary policy and a relative bottoming out of oil prices with a $2.03bn (+0.6%) gain last week, the largest out of any asset class on a % AUM basis."

So with everyone rushing to put their money into higher yielding equities and debt, where is the money coming out of? Not surprisingly, the answer, for yet another week, remains Europe, which last week saw another $2.8 billion in equity outflows which is the 28th  straight weeks of outflows, and the longest outflow streak on record.

Putting it all in context, there has been a total of $5.1bn in global equity inflows (and $11.6bn in past 2 weeks = largest equity inflows YTD); $8.6bn bond inflows - however there has been a 6 consecutive weeks of US Treasury outflows - and $34.5bn money market outflows, the largest since Mar’16 which may be attributable to upcoming MMF regulations.