Developed Country Funds Soar... Emerging Market Funds Struggle

COVID-19 and Strong Dollar Bring Mixed Fortunes
North America Fund Returns 17.55%

[Asia Economy Reporter Minji Lee] As the Delta variant virus spreads worldwide, the returns of funds in developed and emerging markets are showing contrasting results. It is analyzed that investment sentiment toward emerging market stocks has not improved due to the strong dollar and low vaccination rates.

According to financial information provider FnGuide on the 26th, since the beginning of the year until the 23rd, North American funds recorded a return of 17.55%, the highest among overseas regions. Europe also posted a return of 14.88%, exceeding the average return of overseas equity funds (10.43%), while emerging market funds returned only 2.97%. Even in the past month, North American funds recorded 4.46%, but emerging market funds were sluggish at -1.58%.

The difference in returns between developed and emerging market funds is attributed to the resurgence of COVID-19 and increased policy uncertainty regarding interest rate hikes. The structure is such that the stronger the dollar, the more emerging market stocks decline. Changmin Lee, a researcher at KB Securities, explained, "The Delta variant of COVID-19 is rapidly spreading in Southeast Asian countries and major developed countries, raising concerns about economic slowdown. The Federal Reserve's policy uncertainty has led to risk-averse sentiment, and the adjustment of Chinese tech stocks is also analyzed as a major cause of emerging market stock underperformance."

Looking at fund inflows, capital continues to flow into developed market funds, but outflows persist in emerging markets. North American funds have seen an inflow of 2.0319 trillion KRW since the beginning of the year, while emerging market funds experienced an outflow of 57.5 billion KRW. Even over the past three months, North American funds attracted 1.2194 trillion KRW, whereas emerging market funds saw an outflow of 15.5 billion KRW. Hoojung Kim, a researcher at Yuanta Securities, said, "When comparing vaccination rates between emerging and developed countries, most Asian countries have second-dose vaccination rates below 10%, while the US and the UK are at around 50%. Although capital inflows to emerging markets seemed to increase due to expectations of economic recovery, the rapid spread of the Delta variant has led to continued capital outflows."

However, from a long-term perspective, there is also analysis that emerging market stocks are more promising. Although short-term investor sentiment improvement may not occur quickly due to the impact of COVID-19, emerging markets are considered superior to developed markets in terms of earnings growth potential. According to KB Securities, the compound annual growth rate of earnings per share in emerging markets for 2022 and 2023 is 8.6%, higher than the 8.3% in developed markets.

This content was produced with the assistance of AI translation services.