LONDON, Aug. 4, 2016 /PRNewswire/ -- Emerging markets may finally be turning the corner as a recent study by research firm EPFR has shown a huge influx of money into countries like India, Peru and Brazil, ending years of outflows.
A record $5 billion, used to purchase bonds and stocks, has flowed into emerging markets in the past week, making it the biggest weekly cash drop for over 12 months.
The same markets have suffered from heavy outflows, with significant drops in prices for raw materials like copper, crude and iron largely to blame. Now it seems investors feel markets in developing nations might be through the worst of this mini-slump.
"The difference in mood between a year ago and now is palpable," says Director of Asset Allocation at Orix Capital Trading, Steve Rogers. "These emerging economies are in much better shape now and the most recent reports show that the bottoming has occurred and we are on the way up now. The cash stampede we've seen in the last week reflects that significant change in sentiment."
This is not to say that last week's activity is anywhere near what is needed to replace the amount of funds that investors pulled out of those markets this year, but that situation is the same even for developed markets in 2016.
Investments in the euro zone and in the U.S. both experienced large outflows, both losing about $70 billion worth of funds out of their markets due to the heightened bearishness of investors in those regions amid the political chaos of the Brexit vote and other turbulent events.
The drop in crude prices is mostly to blame for the massive retreats seen at the start of the year. Since that downturn commodities across the board have rebounded back to decent levels.
So what are the reasons why emerging markets are suddenly bouncing back so strongly?
A few major factors can be cited. Firstly, as previously mentioned, raw materials have rallied significantly with the MSCI Emerging Market Index up nearly 10 percent in 2016, outperforming stocks both in Europe and the United States.
Then there is the fact that US interest rates are set to stay at relatively low levels, with the Fed indicating in the last few months that they will not be making any changes until after the presidential race is over.
Also, emerging markets are just plain cheap, with their stocks trading better than those from other regions.
In summary, investors are flocking to emerging markets not only because their dollar goes a lot further, but also because the conditions are ripe.
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SOURCE Orix Capital Trading