EM: Flows continue to accelerate – Deutsche Bank

Analysts at Deutsche Bank explain that the EM Flow Indicator shows that inflows, which have been robust through 2017, continue to accelerate and this acceleration seems to be driven by a (tentative) pick-up in institutional investor inflows, which is a positive for EM as institutional inflows tend to be more ‘sticky’ than retail inflows.

Key Quotes

“Inflows have remained strong through the first five months of 2017 – the indicator value has been positive throughout this year. The latest weekly signals show that EM inflows continue to accelerate after the slowdown going into FE1; the market-friendly outcome triggered renewed EM inflows. The latest weekly signal (covering data up to 17th May) is +1.2, which indicates sizable EM inflows over the past week; note that the indicator captures flows normalized by the standard deviation, with values greater than +0.5 indicating significant inflows and values less than -0.5 indicating significant outflows. Contained US rates, dollar weakness, robust global growth and the low volatility regime continue to drive carry-seeking inflows into emerging markets.”

“However, the EM Risk Monitor has moved sharply from risk positive to risk neutral territory, a reflection of the intermittent bouts of deterioration in risk sentiment (and concurrent EM FX weakness) over the past few weeks. The potential for further rapid adverse shifts in risk sentiment, such as this, is part of our rationale for turning more cautious on EM FX.”