September 2016 Highlights: US equity and Japanese equity inflows stole the show, gathering $9.7bn and $9.3bn respectively…..
Marchioni Ursula – Head of ETP Research EMEA at iShares
Flows into emerging market equities have drastically slowed compared with last month. Despite this, broad EM equities attracted a further $2.7bn following continued support of the weaker dollar.
The Bank of Japan’s purchase of Japanese equity ETPs contributed ~$7bn of this month’s ETP flows, but even without this there was still notable buying from domestic investors of Japanese equities.
The only exposure which did not seem to benefit from improved risk sentiment at a global level was European equities, which saw $2.5bn of outflows.
Fixed income flows point to a risk-on market sentiment, with strong buying of both emerging market debt and US high yield ETPs. 2016 has now seen the fastest growth rate in global bond ETFs since 2012, with European and US markets tripling in size over the last six years.
Gold, whilst having a slow start to the month as a result of US investor selling, ended the month up $738m with the FOMC announcement to keep rates on hold.
Quote from Ursula Marchioni, Chief Strategist for iShares EMEA at BlackRock
“Despite the recent spike in volatility, particularly for FX and commodities, global ETP flows showed that risk-taking amongst investors remained through September. This was mostly attributable to the Federal Reserve holding rates, and to marginal changes from the Bank of Japan’s purchase programme.
“Emerging markets (EM) continues to attract investors, with year-to-date inflows at the highest since 2012. The EM asset rally could have more room to go, as a tactical play. This is due to the gentle Fed rate hike path as well as structural improvements within emerging economies, coupled with relative calm in the oil and Chinese markets.
“US equities collected $9.7bn, of which $1.3bn went into dividend-weighted strategies amid improving economic data in the US. This is a continuation of one of the biggest trends seen throughout Q3 2016 when US equity ETP flows gathered $58.4bn, in line with Q4 2015 which was the strongest quarter on record with $58.7bn of net new assets. With US elections looming in Q4, we expect equity volatility to increase.
“European investors started to put some money back into European equities. Given the ongoing concerns about the banking sector and upcoming political events in the region, it is too early to call whether this a reversal of the 10 consecutive weeks of outflows recorded from this exposure since Brexit – or for the bigger trend of outflows from this exposure since the start of the year. Yet these sprouts are certainly worth watching.”