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ETF Investors Are Easing Back on Emerging Markets

This article was originally published on ETFTrends.com.

After a breakout start to the new year, emerging market ETFs are seeing flows slow down with investors calming down from the initial optimism over a quick resolution to trade talks and rebound in global growth.

The iShares MSCI Emerging Markets ETF (EEM) and iShares Core MSCI Emerging Markets ETF (IEMG) were among the most popular ETF plays so far this year, attracting $2.5 billion and $5.0 billion in net inflows, respectively, according to ETFdb data.

However, investor money flows into emerging markets have slowed in recent days after the swift run up in Chinese equities, Reuters reports.

Major asset managers and investment banks like JPMorgan, Citi and BlueBay Asset Management, among others, have been piling into the emerging markets in recent weeks. According to the Institute of International Finance, flows to emerging market assets in mid-February soared close to levels last seen late January 2018, or days before emerging and global markets plunged, after the Federal Reserve revealed a more dovish stance on monetary policy.

In mid-February, fund managers surveyed by Bank of America Merrill Lynch also said emerging markets were the “most crowded trade” around for the first time in the survey’s history. This designation could foreshadow tougher times ahead for the category as assets named “most crowded” usually pullback soon afterwards.

IIF chief economist Robin Brooks said that flows have since cooled.

“Flows have pulled back, including into China equities where we had seen a pick up in Q4 and around the Fed meeting,” Brooks told Reuters. “You can see that equity flows in particular have pulled back after a big surge post-FOMC on Jan. 30, indicating more caution as the final trade negotiations take shape.”

Most of the flows may be attributed to China where foreign capital flows into the market h ave jumped in the first few weeks of 2019 in response to bets on stimulus measures out of Beijing and the awaited announcement of a potential increase in China A-shares exposures to MSCI's benchmark indices.

For more information on the developing markets, visit our emerging markets category.