By Tim Seymour
This week’s flows take emerging markets funds back to a net $10.7 billion below where they were at the end of 2010 in terms of investor subscriptions. Granted, 2010 was a record year with a net $90 billion flowing into the asset class, but we still have a lot of room to go here.
On the one hand, this bodes very well for the Emerging Markets ETF (NYSEARCA:EEM) and just about everything else in the asset class once we get into the second half of this year:
But the negative flows we saw over the last few months tell you where the inflation fears are and where investors are worried that global growth may not be sustainable.
Once again, ETFs continue to be the driving force behind flows — and have typically accounted for half the overall movement in recent weeks.
This means the current move is indicative of retail not institutional money. We have just not seen large-scale allocations yet, leaving the emerging markets under performing and undeserving of it.
At the risk of repeating the obvious, there has been a total misunderstanding of the differences between emerging and developed growth and how valuations play into that.
We have seen strong rotation back into large-cap commodity names and global integrated miners, but left in the dust have been some high-growth retail and consumer names — which are now actually showing some signs of value.