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Institutional Investors Continue to Place Asset in Emerging Markets; China and Brazil to Drive Investor Returns


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Inflows to Emerging Market Equity

According to eVestment Asset Flow data, institutional investors continue to allocate assets away from strategies that invest in the world's developed economies and towards international strategies, most notably Emerging Market Equity products.


Through the first half of 2011, Emerging Market Equity products have experienced asset inflows of $20.0 billion from institutional investors with gains of $4.9 billion in 1Q 2011 and $17.1 billion in 2Q 2011. The gains in the first half of 2011 follow a blockbuster year in 2010 when the Emerging Market Equity category recorded $75.5 billion in inflows. At the end of June, institutional assets under management reported by investment managers in the 'eA Emerging Market Equity' universe totaled $606.4 billion.


Data for Q3 2011 will be available in the coming weeks and expectations are high that inflows will surpass the $17.1 billion of inflows in 2Q 2011. In 2009 and 2010, the strongest quarters in terms of inflows to Emerging Market Equity strategies were the third and fourth quarters. Given that the data has exhibited a cyclical nature in previous years, we anticipate inflows accelerating during the second half of 2011.



China, Brazil Lead Allocations Among EM Equity

As of June 30, 2011, China and Brazil, recording an average allocation of 15.3% and 14.7% respectively, were the top two country allocations across the 285 Emerging Market Equity products that supply information to eVestment's database. As the other BRIC nations of India and Russia ranked fifth and sixth in the top 10 list, Korea and Taiwan ranked third and fourth with an average allocation of 12.5% and 9.2% each.




Economic Growth Accelerating in Emerging, Frontier Countries

In the latest World Economic Outlook produced by the IMF, the single, overwhelming theme continues to be the stagnation of the world's developed economies, primarily the Eurozone, Japan and the United States. The only forces to counteract the slowdown in these regions will be the growth in the emerging and frontier markets. China, Taiwan, India, and Indonesia all are forecast to grow at rates greater than 5% in 2012, compare that with a forecast of 1.9% average  growth in the world's advanced economies for 2012.


Above, Figure 2.1 titled "Current Global Growth versus Precrisis Average" from the latest IMF Outlook, illustrates the fact that institutional investors need to be heavily invested in emerging and frontier economies over the next few years to avoid the anemic recoveries in the G-7 economies. The countries shaded in blue represent those economies that are projected to grow at a pace of 2% or MORE in 2011-2012 than they grew over the 2000-2007 period, representing accelerating economic activity. The countries shaded in red represent those economies that are projected to grow at a pace of 2% or LESS in 2011-2012 than they grew over the 2000-2007 period. Using this data, institutional investors will increase allocations to Central and South America, select countries in Eastern Europe and Africa, as well as continue to invest heavily in Southeast Asia.


Certainly, monetary policy decisions, fiscal policy decisions, foreign exchange risk and overall market stability in these regions will be the driving factors behind asset allocations, and many of these countries are not stable enough today nor suitable for long-term investment. However, we believe that these facts underscore the need for asset management firms who specialize in Emerging Market strategies, as their experience and expertise will be increasingly valuable over the next few years. Furthermore, we anticipate that asset flow trends through 2012 will mirror the trends show in Figure 2.1 and investor demand for Emerging Market and Frontier Market strategies will accelerate.


For more information on Asset Flow trends and Institutional Investor Data, please contact us at or check out our blog at


Download the full text of The World Economic Outlook (WEO) HERE


The World Economic Outlook (WEO) presents the IMF staff's analysis and projections of economic developments at the global level, in major country groups (classified by region, stage of development, etc.), and in many individual countries. It focuses on major economic policy issues as well as on the analysis of economic developments and prospects. It is usually prepared twice a year, as documentation for meetings of the International Monetary and Financial Committee, and forms the main instrument of the IMF's global surveillance activities.