Investors Flee Chinese ETFs as Emerging Market Debt Draws Interest
TLDR
- Chinese stock ETFs faced significant outflows due to concerns over China's economic outlook, with KWEB experiencing its largest weekly withdrawal since August 2022.
- Meanwhile, emerging market debt ETFs like EMB and Janus Henderson attracted substantial investor interest amid expectations of upcoming US Federal Reserve monetary policy changes.
- iShares MSCI Emerging Markets Ex-China ETF (EMXC) also drew investor attention with $194 million in inflows.
Investors withdrew significant funds from exchange-traded funds (ETFs) focused on Chinese stocks last week, reflecting mounting concerns over China's economic outlook. The KraneShares CSI China Internet Fund (KWEB) saw outflows of $238 million, marking its largest weekly withdrawal since August 2022.
Similarly, the iShares China Large-Cap ETF faced outflows of nearly $55 million, marking 11 consecutive weeks of redemptions. In contrast, emerging market debt attracted substantial investor interest amid expectations that the US Federal Reserve will soon begin easing monetary policy.
The iShares JP Morgan USD Emerging Markets Bond ETF (EMB) recorded $238m in inflows, while the Janus Henderson Emerging Markets Debt Hard Currency ETF saw $157m in new investments. The iShares MSCI Emerging Markets Ex-China ETF (EMXC) also attracted $194m.
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Key Takeaways
Emerging-market assets experienced a rally on Friday following comments from Federal Reserve Chairman Jerome Powell, who indicated that the time to adjust monetary policy had arrived, spurring a wave of risk-on behavior across global markets. The inflows into emerging-market debt and ETFs excluding China highlight the attractiveness of these assets as the Federal Reserve prepares to pivot towards rate cuts. The $3.57 billion in inflows into US-listed emerging market ETFs this year indicates a growing preference for riskier assets, particularly those offering higher returns amid a potential easing cycle by the Fed. As the year progresses, the focus may continue to shift towards emerging markets outside China, especially if Chinese economic conditions remain unclear.
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