The bank notes the recent stabilization could signal a bottom for emerging markets, though Asian economic data continues to lag. Alongside the data, UBS reports the record 30-week streak of inflows into emerging market (EM) exchange-traded funds, which has injected some $57 billion of new money into the asset class, has ended. EM ETF outflows have been concentrated in Asia ex-Japan funds, signaling investor concern over China in particular.
According to Chinese bureau statistics chief Ning Jizhe, the weakness in China has been driven primarily by a slowdown in domestic demand, as opposed to the effect of the trade war with the US, as Beijing seeks to lower debt levels in the world's second largest economy.
Whether the end of the EM ETF inflow streak represents a pause or a broader reversal remains to be seen. Several questions, including slowing global growth and the potential for increased trade disputes, overhang the asset class despite it seeing significant inflows in recent years.
EM equity outflows have also occurred alongside outflows in US equity funds, signaling a broader aversion to risk by investors despite double-digit returns in 2019 for both asset classes.
In spite of these factors, several experts on Wall Street are increasingly bullish on EM equities . Noted market commentators such as GMO's Jeremy Grantham and JPMorgan Asset Management's David Kelly have signaled their belief that EM equities will provide investors with strong returns in the years ahead, albeit with the risk of short-term volatility.
"I like emerging markets, particularly because, in this mess of changing variables, the asset-class level tends to be pleasantly old-fashioned," Grantham said in September. "When you're talking about an asset class as broad as emerging, and it measures so much cheaper than the US, you pretty well know that it's accurate."
