October saw net outflows from global ETF and mutual funds that invest in emerging market (EM) assets for the first time since March. This was primarily driven by net outflows from funds that invest in equities, while those that invest in bonds also saw a small outflow. However, overall net outflows were small compared to those seen at the beginning of 2014 and we don’t expect this to mark the start of an exodus from emerging markets. Admittedly, slower growth in EM economies is likely to restrain capital inflows, but the big slowdown in the BRICs has probably already happened. What’s more, the valuations of EM assets remain relatively favourable and we also expect the effects of tighter US monetary policy on emerging markets to be limited.
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