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Record Inflows to Emerging Market Funds After China Reopening

The sudden shift in Chinese policy has boosted many different asset classes, with billions pouring into emerging-market debt and equity funds in the week to Wednesday, BofA data showed


China's reopening has led to a surge of investment in EM equities, bonds and other asset classes, BofA says.
A man looks at his phone as people walk past a screen with the Hang Seng stock index outside Hong Kong Exchanges. China's reopening has led to a surge of investment in EM equities, bonds and other asset classes, BofA says. Photo: Reuters.

 

Investors poured $12.7 billion into emerging-market debt and equity funds in the week to Wednesday, following China’s move to ease its Covid restrictions.

The sudden shift in Chinese policy has boosted many different asset classes, from commodities and mining stocks to currencies and equity markets in popular tourist destinations, according to data on Friday from BofA Global Research.

Hong Kong’s share benchmark, the Hang Seng Index closed on Friday at an over six-month high ahead of the Lunar New Year Holiday. Chinese onshore blue chips went into the break at a five-month peak.

The BofA data also showed weekly flows of $14.4 billion into bond funds, $7.5 billion into equities, $0.6 billion into cash and $0.6 billion from gold.

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But major uncertainties remain

European equities witnessed their first weekly inflow in almost a year. BofA said there were $0.2 billion of inflows to European stock funds, the first inflows in 49 weeks.

Europe has benefited both from China’s reopening as well as recent declines in gas prices.

BofA’s “Bull & Bear indicator” is at 3.5, a 10-month high driven by the inflows into emerging markets.

Nonetheless, the note also says that markets are still facing several major uncertainties despite the recent optimism, as central banks near the end of their aggressive interest rate hikes, as well as the possibility of an economic “hard landing” and political tension in the United States around its debt ceiling.

“We are in the trickiest part of the investment cycle: tightening ending but easing far from beginning, inflation over but recession not yet begun, China reopen vs US recession… little wonder Wall St narratives (are) changing quicker than a TikTok video,” it said.

 

  • Reuters with additional editing by Jim Pollard

 

 

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Jim Pollard

Jim Pollard is an Australian journalist based in Thailand since 1999. He worked for News Ltd papers in Sydney, Perth, London and Melbourne before travelling through SE Asia in the late 90s. He was a senior editor at The Nation for 17+ years and has a family in Bangkok.

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