The movements, as shown in BlackRock statistics, show a timid turnback in the leadership of the world stock market.
The MSCI China index and the Euro Stoxx 600 index have both increased since the beginning of October by more than 20% each, outpacing the S&P 500’s increase of 16.2%. The DXY index, which compares the US dollar to a basket of currencies, has decreased 7.9% over the same time frame.
According to BlackRock statistics, this spurred investors to spend $7.3 billion, mostly from US investors, in European equity-focused ETFs, the biggest amount since January 2022.
A net $15.9 billion was invested in emerging market ETFs, which is a 12-month high. The majority of this money came from funds listed in the US ($9 billion) and the EMEA area ($5.3 billion).
A record-equaling $1.8 billion came from ETFs listed on the Emea exchange, while $2.1 billion came from ETFs with US domiciles. Of the total, almost $7.3 billion flowed into single-country funds, which were dominated by China-focused vehicles.
It was the biggest influx since June of last year, when Covid limits had previously been loosened and officials had hinted at a more relaxed attitude to police China’s tech sector after an extraordinary crackdown.
According to Detlef Glow, head of Refinitiv Lipper Emea research, “with the reopening in China and the end of the zero Covid policy, we see a good chance that China picks up and drives growth in emerging markets for the year.” Glow also predicted that a number of developing nations would gain from an increase in Chinese demand for commodities.
For diverse Chinese benchmarks, demand has increased, according to Karim Chedid, head of investment strategy for BlackRock’s iShares division in the Emea region.
The first phase of the China reopening surge, according to Chedid, was concentrated on the technology sector, while the second phase saw an increase in general EM purchasing.
Given that, despite central bank tightening, “financial conditions have relaxed in the previous month” due to the lower dollar and declining bond rates, he thought the latter would continue.
Additionally, Chedid predicted a third stage of the China-driven rise, which would involve buying shares of developed market firms that are well-positioned for revived Chinese development, such as equities in the home furnishings and basic resources industries.
According to Legal & General Investment Management’s Howie Li, global head of index and ETFs, January’s flows “reflect relative values” between regional markets.
According to Li, “dramatic monetary tightening” was felt more forcefully in Europe in 2022, and it appears that the market anticipates a US recession to start shortly.
He predicted that the expectation of more rate increases in the eurozone than the US during 2023 was likely to further strengthen the euro against the dollar, making Wall Street a less appealing market for foreign investors.
Glow asserted that there is no point at which European investors believe that their markets are structurally superior than those of the US.
debt from emerging markets ETFs also had their second consecutive month of inflows of $2.2 billion, following their first ever outflow year in 2022, when $9 billion left the market.
With the $12.6 billion they drew, investment-grade credit ETFs recorded their third-largest monthly inflow on record.
High-yield ETFs also brought in $2.4 billion, more than offsetting December’s outflow of $0.9 billion, but this was still far less than in October and November.
Chedid thought that Americans were increasing the ante by diversifying into European investment grade paper rather than re-rating their debt by switching from US investment grade to US high-yield debt.
High-yield investments are being handled with increased prudence since it is difficult to predict the effects of rising interest rates on economies, he added.
Emea-listed funds received a significant $5.7 billion, with $3.6 billion of that amount going to equities ETFs, the greatest amount since July.
The third-largest amount ever, $855 million, was withheld from their US-listed competitors.