Financial Intelligence is part of the Informa Intelligence Division of Informa PLC
This is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.
When Beijing squeezes, where does the money go?
The cancellation of Ant Financials’ scheduled IPO last November signaled the start of a sustained push by Chinese regulators to clip the wings of major technology plays. That push expanded to other businesses seen as out of line with official goals and policies.
In their latest move, those regulators are proposing new rules requiring any Chinese company seeking to list on a foreign stock exchanges to carry out a cybersecurity review,
Not surprisingly, given these official actions, foreign investors are running shy of Chinese equity. Flows for China Equity Funds were negative eight of the past 11 weeks going into mid-August and fund allocations to foreign listed China share classes – ADR, N Share and S chip – continues to fall.
For investors and fund managers, one obvious question is, who is benefiting from this shift? Another is, how can I tell?
In both cases, EPFR’s core allocations data sets and the specialized China Share Class Allocations data set can help.
Even though multiple academics have argued that China should be its own asset class, for the moment China is still a part of Global Emerging Markets (GEM) suite of investible countries. As a result, the interplay of various Chinese share classes is not the only lens available to investors seeking clues. The rotation of country-level exposure between China and other parts of emerging Asia is also a key tool.
Active measures
What is recent data, and some simple quantitative signals that can be extracted from it, telling us about investor responses to the changing climate, both at home and abroad, for Chinese listings?
During the month of August 2020, the average EPFR-tracked GEM Equity Fund allocation to China reaches a fresh record high of 36.21%. Starting in November, however, that allocation has declined steadily, hitting a 15-month low of 31.28% coming into 3Q21. For India, meanwhile, the allocation among GEM Funds has climbed off a two-year low in late 1Q20 to a 51-month high of 10.87% (See Chart 2 below). Allocations to Korea and Taiwan have also climbed significantly over the past eight to 10 months.
Chart 2 – GEM Funds Country Allocation (% of AuM) to China vs India
Narrowing the focus to China and India, we can use AIS – or active investor spread – to gauge this shift in favor of India. AIS is a measurement of the degree to which active fund managers are overweight or underweight a certain asset class.
In Chart 3, the purple bar represents AIS for India and green bar represents China. We see a slight underweight for India during Q4 2019 and Q1 2020 which turns into consistent overweight from 2Q20 onward. For China, the a consistent underweight deepens
Chart 3 – AIS (Active Investor Spread) vs Benchmark Performance
Assigning the proper weight to the evidence
The underweight illustrated in Chart 3 could reasonably be the result of decreasing weight of ADRs, N shares and S chips.
Given that the domestic A shares benchmark has a pretty good correlation to the average fund’s exposure to A shares, a negative correlation between that benchmark and overall GEM Fund allocations to China points the finger at other China share classes.
If we lay AIS over ETF cumulative performances, we get a correlation of -83.24% and 45.64% for China and India respectively (here, we compare AIS at T-1 vs ETF cumulative performance at T). Therefore, we can conclude that for EM managers the interplay between all China share class is still the major cause of exposure changes.
Given the consistency of the AIS signal since the middle of 2020, we expect (a) that GEM fund managers will continue to increase their exposure to A and Hong Kong listed shares and (b) will rotate some of their foreign listed share class allocations to other major southeast Asia markets.
Get Quants Corner delivered straight to your inbox! Subscribe here.
If you have a query regarding ‘Cruising to Alpha’, please email: sales.financial@informa.com. For more information on EFPR, please click here.
EPFR - fund flow & allocations data
By Cameron Brandt 07 Jan 2022
Continuing the pattern that emerged in the final quarter of 2021, flows to EPFR-tracked funds had a star-spangled bias to them early in the New Year. Between them, US Equity, Bond and Money Market Funds – which absorbed nearly $360 billion in 4Q21 -- pulled in over $25 billion during the week ending January 5. Despite the US Federal Reserve’s more hawkish tone and the derailing of the Biden administration’s Build Back Better spending package, investors believe there is more to come from America’s economy and stock market. This stems in part from the cash accumulated by corporations and individuals over the past 19 months which, potentially, is available to boost consumption and investment. Since the start of the pandemic, the assets held by US Money Market Funds have increased by $1.3 trillion and estimates of the ‘excess’ savings accumulated by American consumers range from $2 trillion to $3.5 trillion.
Topic Industry News
EPFR - fund flow & allocations data
By Cameron Brandt 31 Dec 2021
If 2020 read like a gothic novel, the second year of the Covid-19 pandemic belonged to the suspense genre. At what point would central banks decide inflation is not transitory? Will the new variants of Covid-19 do more or less damage than earlier waves? What consequences will perceptions of US weakness have in Europe and Asia?
Topic Industry News
EPFR - fund flow & allocations data
By Cameron Brandt 24 Dec 2021
With major central banks responding to rising inflation, investor focus shifted during the third week of December to the Covid-19 pandemic’s latest iteration and the measures being taken to contain it. Those measures, self-imposed and mandated, promise to dent consumer and business confidence going into the New Year and weighed on flows to many EPFR-tracked fund groups.
Topic Industry News
EPFR - fund flow & allocations data
By Cameron Brandt 17 Dec 2021
The jury is still out on the impact of rising Covid caseloads triggered by the Omicron variant, but the latest round of inflation numbers delivered a verdict of “not transitory” that major central banks are expected to heed. The Bank of England was the first to respond, raising its key rate, and reinforcing the perception that the US Federal Reserve will accelerate its timetable to wrapping up its current quantitative earing program. Those perceptions hit fixed income fund groups, Emerging Markets Equity Funds – ex-China – and Real Estate Sector Funds during the second week of December. With the European Central Bank (ECB) and Bank of Japan expected to be the last major central banks to tighten policy, Japan Equity and Europe Bond Funds posted solid inflows.
Topic Industry News
EPFR - fund flow & allocations data
By Cameron Brandt 10 Dec 2021
Central bankers have prided themselves on clear communication with markets in recent years. But the road mapped out by Bank of England (BoE) policymakers isn’t taking UK interest rates where markets expected, leaving currency investors all at sea.
Topic Industry News
EPFR - fund flow & allocations data
By Cameron Brandt 10 Dec 2021
Omicron? The grinch that stole the global growth story before Christmas? Or the angel of disinflation that will banish the specter of interest rate hikes? The first week of December saw investors weighing both interpretations of the latest Covid-19 variant and making cautious guesses about which one is more credible. Flows to EPFR-tracked fund groups during the first week of December tilted towards the positive – at least for the US. Investors steered money into US Equity Funds for the 11th straight week, US Bond and Global Equity Funds rebounded from their first outflows in over seven and 17 months, respectively, and US Money Market Funds took in fresh money for the seventh time in the past eight weeks.
Topic Industry News
EPFR - fund flow & allocations data
By Cameron Brandt 03 Dec 2021
Hopes that the impact of Covid’s Omicron variant will prove transitory, concern that it will not, and fears that inflation is here to stay whip-sawed global markets during the final days of November. Concerns about the latter issue were crystalized by recently reappointed US Federal Reserve Chair Jerome Powell’s admission that price pressures could spur the Fed to accelerate the tapering of its asset purchases. Mutual fund investors responded by reassessing their outlooks for the global economy, US interest rates and risk assets. Global Equity Funds posted their first outflow in over 17 months, US Bond Funds experienced their heaviest redemptions since late 1Q20, and investors pulled over $4 billion out of High Yield Bond Funds. Equity funds dedicated to the world’s two largest economies, China and the US, attracted solid amounts of fresh money despite their contrasting approaches to dealing with the pandemic, and Money Market Funds extended their longest inflow streak since 2Q20. Two groups associated with market turbulence, Volatility (VIX) and Cryptocurrency Funds, went separate ways with the former posting their biggest outflow since late 1Q20 and Cryptocurrency Funds extending an inflow streak stretching back to mid-August.
Topic Industry News
EPFR - fund flow & allocations data
By Cameron Brandt 01 Dec 2021
As Europe’s sovereign debt crisis gathered momentum in 2009, several of the hardest hit countries were lumped together and referred to as ‘Club Med’ or PIIGS (Portugal, Ireland, Italy, Greece and Spain) markets. Names have consequences. Coming into 2021 the equity fund groups dedicated to the five PIIGS markets have suffered net redemptions totalling over $12 billion. Read more...
Topic Industry News
EPFR - fund flow & allocations data
By Cameron Brandt 29 Nov 2021
Heading into the US Thanksgiving holiday, Turkey’s defiance of economic policy norms and surging Covid-19 caseloads in Europe claimed the attention of markets and investors. The day after, the emergence of a new Covid variant in South Africa with significant mutations – dubbed Omicron -- triggered a selloff in global equity and commodity markets. With Covid regaining center stage, much of the US on holiday and many central banks rummaging around in their inflation containment toolkit, flows to most EPFR-tracked fund groups were understandably muted during the week ending November 24. Equity Funds recorded their third-smallest collective inflow year-to-date and flows into Bond Funds were a quarter of their weekly average during the first three quarters of 2021. The prospect of a greener, more expensive future continued to influence flows. Commitments to Equity Funds with socially responsible (SRI) or environmental, social and governance (ESG) mandates accounted for the bulk of headline number for all Equity Funds, Inflation Protected Bond Funds posted their 53rd consecutive inflow and Cryptocurrency Funds absorbed fresh money for the 14th week running. Overall, the fourth week of November saw $2.9 billion flow into all Equity Funds and $4.2 billion into Bond Funds while Alternative Funds pulled in $1.6 billion and Balanced Funds $2 billion. Money Market Funds took in $7.8 billion as they extended their longest run of inflows since the second quarter.
Topic Industry News
EPFR - fund flow & allocations data
By Cameron Brandt 19 Nov 2021
The Japanese economy’s 3% contraction during the third quarter and the latest spike in natural gas prices pushed supply chain issues to the top of a lengthy list of investor concerns going into the second half of November. In the case of natural gas, the supply chain linking Europe with an increasingly assertive Russia is back in the spotlight. EPFR-tracked Europe Equity Funds posted their sixth outflow in the past nine weeks and Energy Sector Funds experienced their heaviest redemptions since mid-August as Russian troops built up along the Ukrainian border, Germany suspended certification of the Nord Stream 2 pipeline and the price of natural gas jumped to a four-week high. Tight energy supplies are a headwind for Japan, which imports nearly all of the oil it uses, and bread-and-butter supply chain issues ranging from lock downs in China to global shipping backlogs are also taking a toll. Japan Equity Funds recorded their biggest outflow since early March during the week ending Nov. 17.
Topic Industry News
EPFR - fund flow & allocations data
By Cameron Brandt 12 Nov 2021
Four out of five US companies that have reported third quarter earnings exceeded consensus expectations. Meanwhile, three out of five US businesses report they raised prices in the past 90 days as headline inflation climbed to a 31-year high of 6.2% in October. Celebrate the pricing power of US companies? Accept that the Federal Reserve is behind the curve and allocate accordingly? Cling to the official narrative that inflation is transitory and will ebb as supply catches up with demand? Go green? Investors during the first week of November found themselves, as has been true for much of 2021, trying to square off a bewildering range of circles. From a fund flow perspective, the week ending Nov. 10 saw groups and themes that have fared well for most of 2021 continue to attract fresh money. Inflation Protected Bond Funds extended their current inflow streak to 51 weeks and $87 billion, Global Equity Funds extended a run of inflows stretching back to late 1Q20 and US Bond Funds took in fresh money for the 83rd time in the past 84 weeks. Equity Funds with socially responsible (SRI) or environmental, social and governance (ESG) mandates pulled in over $5 billion and SRI/ESG Bond Funds posted a new weekly inflow record. Also hitting new highs were exchange traded funds (ETFs). Assets parked in the ETFs tracked by EPFR now exceed $10 trillion. These funds, which passively track an index, commodities or baskets of other assets and can be traded on stock exchanges, came into 2020 having hit the $7 trillion mark in early 4Q20. Since then, the pace of inflows has accelerated dramatically. Equity ETFs now account for a quarter of the assets held by all Equity Funds while 15% of all Bond Fund assets are lodged in ETFs.
Topic Industry News
EPFR - fund flow & allocations data
By Cameron Brandt 08 Nov 2021
The twin specters of inflation and the planet running hotter occupied investors going into November as the UN climate summit, COP26, got underway and central bankers in the US and UK met. SFlows to EPFR-tracked funds during the week ending Nov. 3 reflected the general focus on these themes. Ahead of the US Federal Reserve spelling out the tapering of its current asset purchasing program, at the rate of $15 billion a month, and the Bank of England’s Nov. 4 policy meeting, flows continued to rotate from fixed income to Equity Fund groups. During 3Q21, Bond Funds recorded an average weekly inflow of $16 billion versus $14 billion for Equity Funds. So far this quarter, flows into Equity Funds have averaged $20.5 billion versus $5 billion for Bond Funds. Investors looking for protection from inflation, or ways to keep ahead of its effects, also steered over $2 billion into Inflation Protected Bond Funds for the third time in the past four weeks, extended the current inflow streaks of Bank Loan, High Yield and Cryptocurrency Funds and boosted flows into Commodities Sector Funds to a 20-week high. Equity Funds with socially responsible (SRI) or environmental, social and governance (ESG) mandates, meanwhile, chalked up their 65th consecutive inflow and largest since the second week of July. Year-to-date they have taken in twice as much money, in dollar terms, compared to their non-SRI/ESG counterparts. In % of AUM terms the gap is even more pronounced.
Topic Industry News
EPFR - fund flow & allocations data
By Cameron Brandt 29 Oct 2021
With four out of five US companies reporting third quarter earnings that beat expectations, US equity markets climbed to fresh record highs during the fourth week of October. Mutual fund investors climbed aboard the earnings bandwagon, steering $28 billion into EPFR-tracked Equity Funds. While focusing on the positive, however, those investors also shored up their defenses against inflation and the new taxes that may or may not emerge from the spending bills being pushed by US President Joseph Biden’s administration. Inflation Protected Bond Funds posted their second-largest weekly inflow so far this year, Bank Loan Funds took in fresh money for the 42nd time in the 43 weeks year-to-date and Cryptocurrency Funds chalked up their second record inflow since the beginning of the month. Staying close to cash proved popular, with Money Market Funds recording their biggest collective inflow since the fourth week of 2Q20. Overall, flows into those liquidity funds during the week ending Oct. 27 totaled $79.7 billion. Equity Funds absorbed $28 billion, Bond Funds $8.6 billion, Balanced Funds $2.4 billion and Alternative Funds $1.8 billion.
Topic Industry News
EPFR - fund flow & allocations data
By Cameron Brandt 26 Oct 2021
Rising prices and higher-than-expected earnings shaped investor sentiment during the third week of October. Most of the companies reporting their 3Q21 numbers surpassed expectations. But their reports and forecasts were qualified by the shortages, input cost increases and supply chain issues they are facing. Investors responded by pouring nearly $25 billion into EPFR-tracked Equity Funds, with 10 of the 11 major Sector Fund groups recording inflows for the week, and by stepping up their search for inflation protection. Bank Loan and Inflation Protection Funds took in over $1 billion apiece, and Cryptocurrency Funds extended their current inflow streak.
Topic Industry News
EPFR - fund flow & allocations data
By Vik Srimurthy 20 Oct 2021
In late October the mind – at least in the US – turns to brews, potions and mixtures as Halloween looms and faux witches cauldrons dot suburban lawns. Read more...
Topic Industry News
Sample data or analysis
Would you like to request sample data or analysis from Informa Financial Intelligence?
Request a live demo
