EM Equity Strategy : Big Outflows from China ($5.6b) and GEM ($6.7b)

A-Share ETFs Account for Over (60%) of GEMs Outflows

    According to EPFR Global, aggregate GEM funds reported outflows of $6.65bn in theweek ending on July 15th, ending a three week inflow streak which included therecord $10.87bn inflow just a week ago. This week’s outflow was the second biggestYTD, with just over 60% of the outflows being from China A-share ETFs. Ex A-shareETFs, aggregate GEM and Asia ex-Japan outflows saw outflows of -$2.55bn and -$1.87bn, respectively. Among regions, Asia ex-JP (-$5.98bn, second biggest weeklyoutflow YTD), dedicated GEM (-$647mm) and EMEA funds (-$68mm) funds allreported outflows; LatAm funds (+$36mm) had small inflows. Among MSCI GEMcountries, only Korea and Mexico reported inflows; the biggest country outflows, asidefrom China ($5.58bn) were from Taiwan and India.

    Big Outflows from GEM ETFs and LO Funds (11 Straight Weekly Outflows)

    GEM ETFs had their second biggest outflow of the year ($4.12bn), reversing a smallpart of the heavy inflows of the prior three weeks (cumulative inflow: $19.4bn).

    Outflows from A-share ETFs (-$4.05bn) accounted for nearly the entire GEM ETFoutflow last week. Meanwhile, GEM LO funds had an eleventh straight weekly outflow,accelerating to $2.54bn (vs -$1.32bn a week ago). So far in 2015, 63% of GEMoutflows have come from LO funds, while just 37% of outflows have come from ETFs.

    Aggregate YTD GEM Fund Outflows: $19.3bn (vs $29.1bn YTD Peak)The cumulative YTD outflow from all GEM funds bounced back close to $19.3bn (2.2%of AUM) with this week’s outflow, but remains well below the YTD peak outflows$29.1bn from mid-June. All fund groups have reported outflows in 2015, led bydedicated GEM (-$8.1bn, 1.8% of AUM), Asia ex-JP (-$5.5bn, 1.5%), LatAm (-$4.5bn,15.0%), and EMEA (-$1.1bn, 3.0%). Ex-A-Share ETFs, aggregate GEM funds havereported YTD outflows of $3.4bn and Asia ex-JP funds have seen inflows of $10.5bn.

    Country Positioning: India is the most crowded EM equity marketAccording to our model, positioning (based on foreign investor flows) appears morecrowded than last week in Mexico (+2 places in our model) Brazil, Chile, Peru, Malaysia,Thailand, Turkey, Philippines, and Korea. Markets which appear less crowded includeChina (-3), UAE (-3), Poland (-2) and South Africa. Based on our model, the mostcrowded EM markets are India, Taiwan, Qatar, Russia and Brazil. Colombia is the leastcrowded equity market, followed by Egypt, Korea, UAE and Indonesia.