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
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 EPFR.
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
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 billion.
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
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.