Emerging markets resilient in new IIF flow tracker
The IIF’s new portfolio flows’ tracker shows a more positive picture of emerging market debt investors, it says
Portfolio flows to emerging debt markets have held up better
over the past year than much of the financial community is
assuming, according to a new indicator from the Institute of
International Finance. The news comes as EPFR data for the week
to 12 March shows inflows to local currency bond funds at their
highest level since May 2013.
Analysts and media have watched fund data closely in recent
months, as expectations of higher US rates have led to bets
that hot money flows to emerging market debt would reverse,
after building up thanks to quantitative easing.
Robin Koepke, an economist working on the IIF's new monthly
tracker of flows, said the reality may not be as grim as the
headlines suggest: "A big section of longer-term institutional
investors have not been as sensitive as the investors that much
of the media and analyst community have focused on."
EPFR has become an international financial industry
benchmark for data on fund flows. But according to Koepke,
EPFR's method of gathering data from funds only offers a subset
of the real picture. EPFR data is "timely, but not
comprehensive", according to the IIF.
In Koepke's view EPFR's data overemphasizes retail flows and
misses much of the underlying institutional flows, especially
on the debt side. "EPFR is useful for many things, but in terms
of gauging overall flows, it's limited," he said.
The IIF's new monthly tracker takes figures on countries
which publish regular data on flows, and from that builds an
estimate of the overall picture, using historical data to infer
those countries' proportion of total flows, supplemented by
data on bond issuance, asset price movements, and from
According to the IIF, portfolio inflows to emerging markets
reached $214 billion in 2013. The Institute's data also shows
more resilience in portfolio flows during the first months of
2014 than data from conventional sources, such as EPFR.
Based on the accuracy of past estimates - which they tested
against subsequently released data from countries which publish
fund flows less regularly - Koepke said the IIF's debt market
tracker has an average margin of error of around $5.5
However, according to Koepke this means observers "can be
confident that there were positive inflows" to emerging market
debt in February. The IIF's estimates suggest $15 billion of
portfolio debt inflows in January, and $18 billion in
Those figures are much less gloomy than recent EPFR data.
Despite inflows to fixed income funds of $560 million in the
week to 12 March, the latest EPFR data shows $11 billion in
outflows from emerging market bond funds in 2014 year to date.