MSCI EM declined 2.9% in May underperforming DM by 2.7%.
Concerns that the Fed could taper QE earlier than expected plus JGB
sell-off drove a rout in EM bonds and FX markets. EM equities remain
fundamentally weak. EPS revisions for most major country sectors are
negative. BRIC economic growth remains disappointing.
The sell-off in EM FX was sharp and widespread. Commodity/cyclical
currencies suffered the most. The ZAR was the worst hit down 11%; it
depreciated 20%ytd even underperforming the Yen (-16%). ZAR
underperformance was initially driven by local factors; rising labor
tensions in the mining sector plus FX hedging of imports for renewable
energy loans and risks to electricity power cuts. The underperformance
was exacerbated in the second half of May as the rise in US bond yields
triggered concerns over South Africa’s ability to fund its large current
account deficit. LatAm currencies declined sharply with the BRL and
MXN down 7% and 5% respectively. The DXY gained 2%. CNY was
the only currency that appreciated against the US dollar (+0.5%).
LatAm (-7.2%) was the worst performing EM region while EM Asia (-
1.1%) outperformed. The top three markets were Egypt (+4%), Poland
(+3.3%) and Malaysia (+2.7%). Chile (-8.6%), Peru (-8.4%) and Brazil
(-7.8%) were the worst performers (See page 9). The top three country
sectors were China industrials, Korea consumer discretionary and China
consumer discretionary. Brazil materials, SA financials and SA
materials performed the worst. (See page 11).
Total EM equity funds had net redemptions of US$3bn, the highest since
end 2011. GEM equity funds had the largest outflows (-1.4bn), followed
by Asia ex Japan (-872mn), EMEA (-324mn), LatAm (-303mn) and
BRIC (-111mn). YTD inflows into EM are at US$26bn. EM bond fund
flows turned negative amid heightened market volatility with outflows
of US$143mn for the week ending May 29, the first weekly outflow
since August 2012. YTD flows are at US$35bn.
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Concerns that the Fed could taper QE earlier than expected plus JGB
sell-off drove a rout in EM bonds and FX markets. EM equities remain
fundamentally weak. EPS revisions for most major country sectors are
negative. BRIC economic growth remains disappointing.
The sell-off in EM FX was sharp and widespread. Commodity/cyclical
currencies suffered the most. The ZAR was the worst hit down 11%; it
depreciated 20%ytd even underperforming the Yen (-16%). ZAR
underperformance was initially driven by local factors; rising labor
tensions in the mining sector plus FX hedging of imports for renewable
energy loans and risks to electricity power cuts. The underperformance
was exacerbated in the second half of May as the rise in US bond yields
triggered concerns over South Africa’s ability to fund its large current
account deficit. LatAm currencies declined sharply with the BRL and
MXN down 7% and 5% respectively. The DXY gained 2%. CNY was
the only currency that appreciated against the US dollar (+0.5%).
LatAm (-7.2%) was the worst performing EM region while EM Asia (-
1.1%) outperformed. The top three markets were Egypt (+4%), Poland
(+3.3%) and Malaysia (+2.7%). Chile (-8.6%), Peru (-8.4%) and Brazil
(-7.8%) were the worst performers (See page 9). The top three country
sectors were China industrials, Korea consumer discretionary and China
consumer discretionary. Brazil materials, SA financials and SA
materials performed the worst. (See page 11).
Total EM equity funds had net redemptions of US$3bn, the highest since
end 2011. GEM equity funds had the largest outflows (-1.4bn), followed
by Asia ex Japan (-872mn), EMEA (-324mn), LatAm (-303mn) and
BRIC (-111mn). YTD inflows into EM are at US$26bn. EM bond fund
flows turned negative amid heightened market volatility with outflows
of US$143mn for the week ending May 29, the first weekly outflow
since August 2012. YTD flows are at US$35bn.
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