Industry Updates

Emerging markets ETF tops European flows for second week in a row

XMME booked $1.4bn inflows during the two weeks to 12 March

Jamie Gordon

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The flagship emerging markets ETF from DWS has topped European flows in consecutive weeks as investors consider eye a rebound in the asset class with economies emerging from the coronavirus pandemic.

According to data from Ultumus, the $5.5bn Xtrackers MSCI Emerging Markets UCITS ETF (XMME) saw $623m inflows in the week to 5 March, the most across all ETFs listed in Europe.

Then, during the week to 12 March, XMME bettered its previous performance with inflows of $779m, over $100m ahead of the second-most popular strategy of the week. 

According to Keshava Shastry head of capital markets at DWS, XMME has benefitted from an uptick in on-exchange trades by a number of institutional investors.

It appears investors are looking to take advantage of the cheap valuations on offer with emerging market equities trading at a 29% discount to US stocks versus a 25% average over the last 15 years, according to data from Bloomberg.

“We have been speaking to many clients about emerging market exposure in general, and post-pandemic recovery positioning,” Shastry continued. “Lots of clients are looking at broad emerging markets and also some of the specific country exposures in our range.”

In general, emerging market strategies performed well since the US election with the MSCI Emerging Markets index returning 3.9% since the start of the year versus 1.5% for the MSCI World, as at 26 February.

Emerging market ETF inflows signal bullish investor sentiment

This has been driven by Asia’s ability to control the coronavirus pandemic combined with positive vaccine news across emerging economies.

In the last few weeks, however, the asset class has started to underperform wider global markets.

Moving forward, Bloomberg Economics reported central banks of Russia, Brazil, and Nigeria are already considering tighter monetary policy. This, alongside commodity price inflation and a recovery in the US dollar, could be harmful to short-term returns across emerging markets.

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