"Funds Leaving China Head to Emerging Markets"… US ETFs See 4.7 Trillion Won Outflow in One Month

Some Funds Diverted from China Flow into Emerging Markets like India and Brazil

As concerns about an economic crisis triggered by the real estate sector spread, American investors are withdrawing funds from China and reallocating them to emerging markets. With no signs of recovery in exports and domestic demand alongside real estate, the exodus from China is expected to continue.

On the 10th (local time), Bloomberg reported that, based on data tracking investment flows in U.S.-based ETFs, American investors withdrew $3.5 billion (approximately 4.7 trillion KRW) from passive ETFs that track stock indices last month. During the same period, $500 million (about 670 billion KRW) flowed into active ETFs that selectively invest in individual stocks, with funds particularly pouring into products investing in India’s profit-growth industries and South American equities.

Although active ETFs investing in emerging markets account for only about 4% of trading volume (with active ETFs making up 96%), the net inflow of funds has increased to 42% over the past three months (June 1 to September 6). Among the seven U.S. ETFs tracking emerging markets that have raised over $1 billion this year, three products reduced their China exposure while increasing their India exposure compared to passive products.

[Image source=AFP Yonhap News]

By product, the 'iShares Emerging Markets ETF,' which invests $21.6 billion (approximately 28.8 trillion KRW) across emerging markets and has a relatively high China allocation of about one-third, saw over $2 billion withdrawn last month alone. In contrast, the 'iShares MSCI Emerging Markets ex China ETF,' which invests in emerging markets excluding China, experienced net inflows for 11 consecutive months through last month.

Disappointment in China’s economic recovery is expected to continue driving capital outflows from China. Daniela da Costa, an emerging markets analyst at Robeco Asset Management, said, "We are seeking opportunities in emerging markets outside of China," adding, "We are particularly focusing on South American and Southeast Asian equities." Bloomberg assessed that the shift of funds from passive ETFs to other passive ETFs reflects investors’ disappointment with China’s economic recovery, which had been anticipated following the end of the zero-COVID policy.

Donald Calcagni, CIO (Chief Investment Officer) at Mercer Advisory Investment Management, commented, "Investors probably do not want to blindly and foolishly follow indices," and added, "This is an opportunity to reconsider allocations to emerging markets and to approach geographic diversification more flexibly."

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