GEMs funds flows:Investors to focus on US payrolls

Investors will pay close attention to changes in US Nonfarm payroll figures for June, to bereleased on Friday, 7 July. HSBC (173K) and Bloomberg consensus (178K) foresee animprovement in labour dynamics compared to May’s release (138K). A number belowexpectations could reduce market fears about too much hawkishness within the FOMC incoming sessions and potentially be positive for EM risk-taking, in our view. HSBC Strategymaintains its view of below 2% UST 10yr yields by the end of 2017 and a softer USD.

    From the EM perspective, EM fundamentals are in good shape with a constructive growthoutlook, anchored by stable growth in China, benign inflation prospects and narrow externalimbalances. HSBC also maintains a positive view on commodities for the rest of the year andthe EM central bank outlook remains in the neutral/dovish camp (p. 7), despite volatility in corerate expectations recently. All of these make us sanguine on EM assets.

    Larger inflows to EM compared to DM funds persisted, as a percentage of AUM, in the weekended 5 July. Within EM bond funds, South Korea, India and Colombia captured largest inflowsin USD, whereas South Korea, India and Taiwan markets led as a percentage of AUM. AmongEM equity funds, South Korea, Hong Kong and India gained the most in USD, while Frontiermarkets, South Korea and Colombia saw the largest inflows in AUM. Strong ETF andinstitutional funds supported LCD funds, while large redemptions from ETF and institutionalfunds hurt EXD funds. Solid Non-ETF and retail funds lifted equity funds (p.13). In DM, stronginflows into US and Global funds boosted bond funds, while large inflows to Global andJapanese funds offset withdrawals from US equity funds.

    HSBC’s early signalling system points to softer demand EXD funds but stable to strong forLCD, equities and corporate (p. 14). Similarly, EM fund flows momentum (p. 5) and dispersionindicators (p. 8) highlight some preference for local markets. Daily financial account portfolioflows show withdrawals from bonds (seven countries), mainly South Korea, South Africa andIndonesia, but inflows into equities (eight countries), mostly South Africa and Brazil (p. 15).