Emerging Market Investments Could See Outflows for First Time in 27 Years

New York (HedgeCo.net) – Developed countries have poured money in to emerging markets in recent years as low interest rates and the need for greater diversification have led to an increased appetite for emerging market equities and debt instruments. However, a recent report from the Institute for International Finance (IIF) suggests that the inflows may come to an end in 2015.

According to a recent Reuters’ article, part of the problem for emerging markets is that they are losing support from pension funds, insurance companies and sovereign funds. The IIF reported that while these funds were pumping money in to emerging markets for the last couple of years, those same investors have been pulling money out at an alarming rate in the last three to four months, estimating that $40 billion in total outflows have taken place with 75% of that coming from the big institutional investors.

These figures have led the IIF to predict the first annual outflow in the last 27 years with the last one being in 1988.
Since the beginning of 2010, emerging markets as a whole have underperformed more developed markets. Using the iShares MSCI Emerging Markets ETF (NYSE: EEM) as a barometer, the EEM is down 3.88% since the beginning of 2010 whereas the SPDRs are up over 100% during the same time period and the iShares that represent the countries of Japan, Germany and the United Kingdom are all up over 30%.

Rick Pendergraft
Research Analyst
HedgeCoVest

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