We have previously highlighted that despite the global equity selloff there has been only a marginal decline in flows to emerging market equity ETFs, which suggests that investors remain committed for the time being. We have dug further into fund flows for Brazil and Mexico given that both have been rocked by severe market instability. To aid comparability, we have considered long-only equity ETFs (data is patchy on fixed-income ETFs) and allow for leverage and currency hedging.
In Brazil, capital inflows have surged, while in Mexico investors rebuilt positions during the first half of the year. More interesting is the split between locals and foreigners. In both cases foreign inflows have been flat to lower, while domestic investors have jumped back into local equities. While this may reflect a home bias and subjective assessment of value, there is also an information asymmetry at play as locals have better insight on political developments and on-the-ground issues compared to foreign investors. This gels with the positive view on Mexico and Brazil expressed by our leading indicators.
(Click on image to enlarge.)
Source: Bloomberg, Macrobond and Variant Perception