How slowing central bank trade is impacting emerging market ETFs

How slowing central bank trade is impacting emerging market ETFs

How slowing central bank trade is impacting emerging market ETFs Investors are getting weary of the European and Japanese central bank trade – with means that inflows are surging for emerging-market exchange-traded funds, according to an ETF Strategy report.

US-listed emerging-market ETFs have taken in about $17 billion so far this year, while Europe-based emerging-market ETFs have taken in about $12 billion. That money was spread out across 54 Europe-based ETFs and 46 US-based ETFs.

“This trend is deep and wide; it’s not hust a few institutions getting excited,” Bloomberg senior ETF strategist Eric Balchunas told ETF Strategy.

The emerging-market boom is driven in part by increasing apathy toward investment in Europe and Japan. According to ETF strategy, global ETF outflows to the end of July hit -$30.7 billion out of Europe and -$0.7 billion out of the Asia Pacific region.

“The central bank trade is dead,” Balchunas told ETF Strategy. “The markets have since struggled a bit. The easy trade is over. Could it come back? Yes. But outflows are steady – and in some months violent – out of Japan and Europe.”

Investors are taking profit from those regions even though they’ve seen consistent positive performance, according to ETF Strategy.

 Meanwhile, the emerging-markets boom may depend on actions taken by the U.S. Federal Reserve.
“Can the emerging markets rally survive the Fed raising rates? I guess we will find that out,” Balchunas told ETF Strategy. “In the past money has scurried in and out of emerging-market ETFs around the Fed. But it could be that this trend is a genuine reallocation and people are becoming bullish.”