EMEA total USDbn % AUM GEMs funds flows USDbn MULTI...

Disclaimer & Disclosures

Disclaimer & Disclosures

This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which

forms part of it.

Strong inflows to EM EXD and equity funds

Given recent comments by some Fed officials, all eyes will be on the US nonfarm payrolls for

August on 2 September. A number around or below forecasts (Bloomberg: 180K), after a

disappointing US ISM for August, would potentially reduce market expectations for a rate hike

later this month, and support EM funds and related assets. HSBC Economics expects the

FOMC to deliver the next hike by mid-2017.

Global investors’ preference for EM over DM funds continues for the 11th consecutive week, in % of

AUM, in the week ended 31 August. Among EM funds, net inflows focused on Indonesia, Mexico

and Brazil bond funds while equity gains concentrated in India, Taiwan and Brazil. Within DM funds,

net inflows to US and Global equity funds compensated for ongoing redemptions from European

(France, Germany and UK) equity funds. Meanwhile, European, US and Global bond funds grabbed

most of flows to DM bond funds. HY funds posted redemptions.

HSBC’s early signalling system suggests persistent demand for EXD and equities but less so

for LCD as investor got nervous ahead of US Nonfarm payrolls for August (p14). HSBC’s EM

fund flows momentum (p5), dispersion indicators (p8) and institutional and retail demand (p13)

also show support for EXD and equities but less so for LCD. However, daily financial account

portfolio flows to seven countries shows outflows from equities, mainly S. Korea and S. Africa,

and from bonds, particularly S. Korea and Indonesia (p15).

On benchmark performance, corporate debt was flat (13.5% y-t-d) as gains in HY compensated

losses in IG. EXD eased 0.1% w/w (14.3% y-t-d), led by S. Africa. EM equities declined 0.3%

w/w (12.5% y-t-d) driven by S. Africa, Peru and Chile. And LCD declined 1% w/w (14.8% y-t-d),

on weaker EM FX (-1% w/w, 4.6% y-t-d), mainly ZAR, PEN and PLN.

Last week’s equity flows

Source: EPFR Global, HSBC

Last week’s bond flows


Bertrand Delgado

Director, Senior EM Strategist

HSBC Securities (USA) Inc.

[email protected]

+212 525 0745

Kishore Muktinutalapati*

Equity Strategist, Frontier & Emerging Markets

HSBC Securities & Capital Markets (India) Pvt Ltd

[email protected]

+91 80 4555 2756

John Lomax* Head of Global Emerging Market Equity Strategy

HSBC Bank plc

[email protected]

+44 20 7992 3712

Issuer of report:

HSBC Securities (USA) Inc.

Published:

02 September 2016

*Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations

View HSBC Global Research at:

https://www.research.hsbc.com

GEMs funds flows MULTI-ASSET GLOBAL EMERGING MARKETS

-0.5 0.0 0.5 1.0

EM total

GEMs

AxJ total

Lat-Am total

EMEA total

USDbn

-0.2 -0.1 0.0 0.1 0.2

% AuM

-1.0 0.0 1.0

CEEMEA

Lat-Am

AxJ

GEMs

By Region

Blended

Hard

Local

By Currency

EM total

USDbn

-0.5 0.0 0.5 1.0

% AUM

EM flows larger than DM flows for the 11th straight week

MULTI-ASSET GLOBAL EMERGING MARKETS

02 September 2016

2

Next week, all eyes will be on China, other large EMs

and EMU PMI Services as well as US ISM non-

Manufacturing and China imports for August to get a

hint on how respective domestic demands are doing.

Also, investors will pay close attention to EMU ECB

rate announcement, where the emphasis will likely on

the extension of the QE program. Finally, the market

should focus on China inflation numbers for August to

determine the room for further policy easing.

Bond fund flows

Net inflows to EM bond funds continue for the ninth

consecutive week, led by inflows into EXD and BCD.

LCD saw net outflows. Regionally, GEM and LatAm

funds managed to attract investors. Year-to-date net

inflows into bond funds amount to USD32.5bn, mainly

into EXD funds (USD20.8bn) and Asia ex-Japan

funds (USD12.6bn).

EM corporate bond fund reversed last week’s

outflows, led by gains in IG and EXD funds (charts

27&28). Investments into EM corporate bond funds

amount to USD8.3bn y-t-d.

Japanese institutional investors purchased a net of

USD1bn worth of foreign bonds in the week ending

August 27. This marked the 10th consecutive week of

buying; the preceding week foreign bond investment

was USD4.3bn. According to the Ministry of Finance-

Japan’s data release, investments into foreign bonds

in the months of July and August totalled USD55bn

and USD27bn respectively. Meanwhile, in the week

ended August 31, Uridashi bond (retail bond in

Japan) issuances was triggered by issuances in INR

(USD158.3mn), MXN (USD31.6nm), ZAR

(USD29.2mn), TRY (USD5.1mn) and BRL

(USD3.1mn). YTD, BRL remains as the favourite

currency in EM space with total issuance of

USD1.34bn. BRL is followed by INR, ZAR and TRY

respectively.

Equity fund flows

Flows into EM equity funds strengthened in the last

week of August making it the best month in over two

years. Also, flows over the last month were the

second highest recorded since 2013 (see chart

below). USD15.4bn flowed into EM equity funds in

the months of July and August more than offsetting

the total outflows of USD11.6bn experienced over the

first six months of the year. This strong recovery in

fund flows can be attributed to both the external and

domestic conditions for EM being favourable.

Externally, lower for longer DM rates (triggering a

search for yield) and not so strong USD are

favouring the EM position. Of course, the recent

weeks saw a rise in expectations of the Fed rate hike

in September which in turn exerted pressure on EM

equity performance.

EM domestic conditions have improved over the

recent months especially with the leading indicators

for EM turning up and that for DM falling. Last month,

EM forex reserves resumed their rise after an 18-

month slide (see FT article, 17 August). EM central

banks have ample room to manoeuvre if and when

required. The situation in China seems to be stable,

at least no news is good news. EM equities are sitting

on attractive valuations especially with significant

yield gaps. Corporate earnings cycle is turning rather

strongly. Further, the EM equity rally we have seen so

far this year is far from being a consensus trade.

Although a little near-term weakness seems quite

plausible, we are highly constructive on EM equities.

Monthly flows into EM equity funds (USDbn)

Source: EPFR Global

-30

-20

-10

0

10

20

30

Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16

USDbn


02 September 2016

3

Historical evolution of flows to EM funds

Chart 1. Equity funds: assets under management (USDbn) Chart 2. Bond funds: assets under management (USDbn)

0

5

10

15

20

25

30

35

0

50

100

150

200

250

300

350

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

GEM Funds EM FundsAsia ex-Japan Funds (RHS) Latin America Funds (RHS)EMEA Funds (RHS)

Source: EPFR Global, HSBC Source: EPFR Global, HSBC

Comparison of flows to EM vs. DM

Chart 3. Equity funds: EM vs. DM Chart 4. Bond funds: EM vs. DM


050

100150200250300350400450500550

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

GEM Fund Totals Asia ex-Japan Fund TotalsLatin America Fund Totals EMEA Fund Totals

USDbn

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

Last Week Last Month Last 3 Months YTD

EM Equities DM Equities

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

Last Week Last Month Last 3 Months YTD

EM Bonds DM Bonds

We acknowledge the contributions of Ramya R S in this report. Ms. R S is an associate in our Bangalore office, and she is not registered/ qualified pursuant to FINRA regulations.


02 September 2016

4

Comparison of flows to DM and EM, and global liquidity

Chart 5. Central Bank Balance Sheets: Total Assets (Index, end of 2006=100)

Chart 6. Cumulative DM and EM fund flows since 2007

0

100

200

300

400

500

600

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

ECB FED BOE BOJ Global liquidity

Index

-8

0

8

15

23

30

38

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

-25

0

25

50

75

100

125

EM (RHS) DM

% AUM % AUM

Source: Bloomberg, HSBC Source: Bloomberg, EPFR Global, HSBC

Chart 7. Cumulative DM and EM fixed income fund flows since 2007 Chart 8. Cumulative DM and EM equity fund flows since 2007

-10

0

10

20

30

40

50

60

70

-25

0

25

50

75

100

125

150

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

EM FI DM FI (RHS)

% AUM % AUM

-10

0

10

20

30

40

50

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

EM Eq DM Eq

% AUM

Source: Bloomberg, EPFR Global, HSBC Source: Bloomberg, EPFR Global, HSBC


02 September 2016

5

EM funds: Flows momentum and total returns1

Chart 9. EM fund flows momentum (z-score) Chart 10. LCD funds: flows momentum vs. total returns

-3

-2

-1

0

1

2

3

4

Jan-13May-13Sep-13 Jan-14May-14Sep-14 Jan-15May-15Sep-15 Jan-16May-16

EM Equities EXD LCD

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16

GBI-EM total return LCD funds momentum

(%) Z-score


Chart 11. EXD funds: Flows momentum vs. total returns Chart 12. Equity funds: flows momentum vs. total returns

-3.5

-2.5

-1.5

-0.5

0.5

1.5

2.5

3.5

4.5

EMBI total returns EXD funds momentum

(% )(% ) Z-score

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

Jan-13May-13 Sep-13 Jan-14May-14Sep-14 Jan-15May-15 Sep-15 Jan-16May-16

MSCI EM return Equity funds momentum

(% ) Z-score

Source: EPFR Global, Thomson Reuters Datastream, HSBC Source: EPFR Global, Thomson Reuters Datastream, HSBC

1 For equities, total return index is calculated with gross dividends reinvested in local currency. For bonds, the total return index calculates the effect of re-investing all the gross coupons received back into the bonds of the index.


02 September 2016

6

EM funds: Bond funds related benchmark performance (y-t-d and weekly)

Chart 13. EM hard currency debt funds (y-t-d performance of related benchmark, %)

Chart 14. EM hard currency debt by country (weekly performance of related benchmark, %)

-12%

-8%

-4%

0%

4%

8%

12%

16%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2013 2014 2015 2016

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

Sout

h Af

rica

Arge

ntin

aEg

ypt

Ukra

ine

Indo

nesia

Braz

ilCo

lombia

Viet

nam

Philip

pines

Russ

iaTu

rkey

Mex

icoHu

ngar

yPe

ruCh

inaVe

nezu

ela

Afric

aAs

iaEu

rope EM

Lata

mM

iddle

Eas

t

EM H

GEM

LG

Source: Thomson Reuters Datastream, HSBC Source: Thomson Reuters Datastream, HSBC

Chart 15. EM local currency debt funds (y-t-d performance of related benchmark, %)

Chart 16. EM local currency debt by country (weekly performance of related benchmark, %)

-20%

-16%

-12%

-8%

-4%

0%

4%

8%

12%

16%

20%

24%


2013 2014 2015 2016

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

ZAR

PEN

PLN

MXN HU

F

EM COP

MYR TH

B

IDR

TRY

BRL

RUB

FX Yield Coupon Tot Return USD

Source: Thomson Reuters Datastream, HSBC Source: Thomson Reuters Datastream, HSBC


02 September 2016

7

EM central banks’ monetary policy outlook (market expectations)

Chart 17. EM central bank monetary policy outlook (in 12 months, 15 countries, % of sample)

Chart 18. Market and HSBC expectations about EM policy rate actions in 12 months (bps)

0%

20%

40%

60%

80%

100%

May-12 Nov-12 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15 May-16

Neutral Hikes Cuts

-400

-300

-200

-100

0

100

200

BRL CLP COP CZK HUF INR ILS KWR MYR MXN PLN ZAR TWD TRY

HSBC 3Q2017 Market 12mth

Source: Thomson Reuters, HSBC Source: Thomson Reuters, HSBC

Chart 19. Market expectations about EM policy rate actions in 12 months vs. EM local currency debt yield (%)

Chart 20. EM central banks’ policy action affected by DM disinflationary expectations

5

5.5

6

6.5

7

7.5

-15

-10

-5

0

5

10

15


EM Monetary Policy Outlook (12month ahead, LHS) EM LCD Yield

Hawkish

Dovish

Net number of local curves %

0.500.751.001.251.501.752.002.252.502.753.003.253.503.754.004.254.504.75

-15

-10

-5

0

5

10

15


EM Monetary Policy Outlook (LHS) US swaps 5yr 5yr (RHS) EUR swaps 5yr 5yr (RHS)

Hawkish

Dovish

%Net number of local curves

Source: Thomson Reuters, HSBC Source: Thomson Reuters, HSBC


02 September 2016

8

EM funds: Bond flows per country and dispersion indicators

Chart 21. Bond fund flows per country (USDm) Chart 22. LCD funds: Dispersion indicator (net number of funds adding or

subtracting money)

-200

-150

-100

-50

0

50

100

150

Arg

entin

aD

om. R

epub

licE

gypt

Hun

gary

Jam

aica

Ser

bia

Ukr

aine

Ven

ezue

laV

ietn

amB

razi

lC

hile

Chi

naC

olom

bia

Cos

ta R

ica

Indi

aIn

done

sia

Isra

elM

alay

sia

Mex

ico

Pan

ama

Per

uP

hilip

pine

sP

olan

dR

ussi

aS

outh

Kor

eaS

outh

Afri

caTh

aila

ndTu

rkey

Uru

guay

High Beta Low Beta4wma Last week

-100%

-50%

0%

50%

100%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016


Chart 23. EXD funds: Dispersion indicator (net number of funds adding or subtracting money)

Chart 24. Equity funds: Dispersion indicator (net number of funds adding or subtracting money)

-100%

-50%

0%

50%

100%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

-100%

-50%

0%

50%

100%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016



02 September 2016

9

Bond funds: By region and currency type

Chart 25. EM fund flows by region (% of AuM) Chart 26. Fund flows by currency (% of AuM)

-0.4%

-0.2%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

Lat-Am GEM Asia ex-Japan

Global WesternEurope

USA Japan CEEMEA

Last Week Flow 4 Week Average

-0.3%

0.0%

0.3%

0.5%

0.8%

All EM Blend Currency Hard Currency Local Currency

Last Week Flow 4 Week Average

Source: EPFR Global, Thomson Reuters Datastream, HSBC Source: EPFR Global, Bloomberg, HSBC

EM corporate fund flows

Chart 27. EM corporate fund flows by credit quality (USDm) Chart 28. EM corporate fund flows by currency type (USDm)

0

50

100

150

200

250

300

350

All ratings HY IG EM Corp Total

Last week 4wma

-100

-50

0

50

100

150

200

250

300

350

BCD EXD LCD EM Corp

Last week 4wma

Source: EPFR Global, Bloomberg, HSBC Source: EPFR Global, Bloomberg, HSBC


02 September 2016

10

Bond funds: Weekly FI flows to EM and DM

Chart 29. All Bond Funds Chart 30. All Emerging Market Bond Funds Chart 31. GEM Bond Funds

-0.9%

-0.6%

-0.3%

0.0%

0.3%

0.6%

0.9%

2010 2011 2012 2013 2014 2015 2016

Flow (% of AuM)

-3%

-2%

-1%

0%

1%

2%

3%

2010 2011 2012 2013 2014 2015 2016

Flow (% of AuM)

-3%

-2%

-1%

0%

1%

2%

3%

2010 2011 2012 2013 2014 2015 2016

Flow (% of AuM)

Source: EPFR Global, HSBC Source: EPFR Global, HSBC Source: EPFR Global, HSBC

Chart 32. Asia ex Japan Bond Funds Chart 33. Latin American Bond Funds Chart 34. EMEA Bond Funds

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

2010 2011 2012 2013 2014 2015 2016

Flow (% of AuM)

-4%

-2%

0%

2%

4%

2010 2011 2012 2013 2014 2015 2016

Flow (% of AuM)

-4%

-2%

0%

2%

4%

2010 2011 2012 2013 2014 2015 2016

Flow (% of AuM)



02 September 2016

11

Bond funds: Flows and valuations

Chart 35. EXD bond flows and spread (% of AuM) Chart 36. LCD bond flows and spread (GBI-EM Yield vs UST 10yr yield)

250

300

350

400

450

500

550-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0


EMBI Global Div Spreads (rhs) 4wma flows to EXD funds

bps% AUM

3.0

3.5

4.0

4.5

5.0

5.5-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5


Spread (RHS) 4wma flows to LCD funds

%% AUM


Chart 37. LCD bond flows and EMFX spot Chart 38. LCD bond flows and GBI-EM Yield

60

65

70

75

80

85

90

95

100

215

220

225

230

235

240

245

250

255

260


EMFX spot (rhs) LCD fund flows (cumm since 2005)

% AUM

5.0

5.5

6.0

6.5

7.0

7.5-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5


GBI-EM Yield (rhs) 4wma flows to LCD funds

%% AUM



02 September 2016

12

Bond funds: Flows and volatility

Chart 39. EM bond flows and UST vol (MOVE index) and FX vol (average of EMFX vol and global FX vol)

Chart 40. EM equity fund flows and equity vol (average of CBOE and VIX)

-6.0

-4.5

-3.0

-1.5

0.0

1.5

3.0

4.5

6.0 12

18

24

30

36

FI and FX vol EM FI (RHS)

-12.0

-8.0

-4.0

0.0

4.0

8.0

12.0 10

15

20

25

30

Eq vol EM Eq (RHS)

Source: Bloomberg, Thomson Reuters Datastream, HSBC Source: Bloomberg, Thomson Reuters Datastream, HSBC

Chart 41. EXD fund flows and UST volatility (MOVE index) Chart 42. LCD fund flows and EM FX Vol.

45

60

75

90

105

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0


MOVE Index (RHS) 4wma flows to EXD funds

Index% AUM

6

8

10

12

14

16-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5


EMFX 3m Implied vol (rhs) 4wma flows to LCD funds

% AUM

Source: Bloomberg, Thomson Reuters Datastream, HSBC Source: Bloomberg, Thomson Reuters Datastream, HSBC


02 September 2016

13

Flows by investor type

Chart 43. Weekly EXD and LCD non-ETF (USDm) Chart 44. Weekly EXD and LCD ETF funds (USDm)

-2,500

-1,500

-500

500

1,500

2,500

3,500

Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16

Non-ETF EM EXD Non-ETF EM LCD

-750

-500

-250

0

250

500

750

1,000


ETF EM EXD ETF EM LCD


Chart 45. Weekly EXD and LCD Institutional funds (USDm) Chart 46. Weekly EXD and LCD Retail funds (USDm)

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2,500


Inst. EM EXD Inst. EM LCD

-1,500

-1,000

-500

0

500

1,000

1,500


Retail EM EXD Retail EM LCD



02 September 2016

14

Early signalling systems for turning points

Chart 47. Total Weekly Portfolio Flows (% AuM) Chart 48. LCD Flows to EM (% AuM)

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16

Confidence Band 7-Day MA 28-Day MA

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0


Confidence Band 7-day MA 28-Day MA

Source: EPFR Global, HSBC Source: National Sources, IIF

Chart 49. EXD Flows to EM (% AuM) Chart 50. EM Equity Flows (% AuM)

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0


Confidence Band 7-Day MA 28 Day MA

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5


Confidence Band 7-Day MA 28-Day MA



02 September 2016

15

Total financial flows

Chart 51. YTD total EM bond flows (USDbn)* Chart 52. YTD total actual EM equity flows (USDbn)*

-10

0

10

20

30

40

50

60

70

80


2013 2014 2015 2016

-10

0

10

20

30

40

50


2013 2014 2015 2016

Source: Bloomberg, HSBC

Note: * Seven countries (India, Thailand, S. Africa, Hungary, Turkey, Mexico and S. Korea)

Source: Bloomberg, HSBC

Note: * Seven countries (Indonesia, India, S. Korea, Thailand, S. Africa, Brazil, and Turkey)

Chart 53. YTD total actual EM bond flows (per country USDbn) Chart 54. YTD total actual EM equity flows (per country USDbn)

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

1-Ja

n8-

Jan

15-J

an22

-Jan

29-J

an5-

Feb

12-F

eb19

-Feb

26-F

eb4-

Mar

11-M

ar18

-Mar

25-M

ar1-

Apr

8-Ap

r15

-Apr

22-A

pr29

-Apr

6-M

ay13

-May

20-M

ay27

-May

3-Ju

n10

-Jun

17-J

un24

-Jun

1-Ju

l8-

Jul

15-J

ul22

-Jul

29-J

ul5-

Aug

12-A

ug19

-Aug

26-A

ug

India Thailand S. Africa Hungary

Turkey Mexico S. Korea

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

1-Ja

n8-

Jan

15-J

an22

-Jan

29-J

an5-

Feb

12-F

eb19

-Feb

26-F

eb4-

Mar

11-M

ar18

-Mar

25-M

ar1-

Apr

8-Ap

r15

-Apr

22-A

pr29

-Apr

6-M

ay13

-May

20-M

ay27

-May

3-Ju

n10

-Jun

17-J

un24

-Jun

1-Ju

l8-

Jul

15-J

ul22

-Jul

29-J

ul5-

Aug

12-A

ug19

-Aug

26-A

ug

Indonesia India S. Korea Thailand

S. Africa Brazil Turkey

Source: Bloomberg, IIF, HSBC Note: * Seven countries (India, Thailand, S. Africa, Hungary, Turkey, Mexico and S Korea)

Source: Bloomberg, HSBC Note: * Seven countries (Indonesia, India, S. Korea, Thailand, S. Africa, Brazil, and Turkey)


02 September 2016

16

Monitoring Japanese flows

Chart 55. Net purchases of foreign securities by Japanese residents (USDbn)

Chart 56. Net purchases of foreign securities by Japanese residents (USDbn)

Source: Ministry of Finance Japan Source: Ministry of Finance Japan

Chart 57. Toshin flows (USDm) Chart 58. Uridashi bond flows (USDm)

Source: Investment Trust Association of Japan, HSBC Source: Bloomberg

-7

-5

-2

1

3

6

8

-35

-25

-15

-5

5

15

25

Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16

Bonds Equities (RHS)

-2

-1

0

1

2

3

4

5

6

7

8

9

Equities Bonds Money Market Total

Last week 4wma

Equities Bonds

Jul 3mma Jul 3mma

BRL 79 54 23 58

IDR 39 10 40 (4)

INR 349 187 78 32

KRW 49 23 0 (0)

MXN 4 2 (156) (105)

PHP 24 15 1 (1)

PLN 2 2 6 1

THB 40 12 1 (3)

TRY (16) (9) (42) (27)

TWD 62 26 (13) (4)

ZAR 34 13 18 (3)

0

200

400

600

800

1,000

1,200

1,400

1,600

0

20

40

60

80

100

120

140

160

180

BRL MXN RUB TRY ZAR INR

Last week 4wma YTD (RHS)


02 September 2016

17

Chart 59. Weekly and year-to-date flows into fixed income funds


-1.0 0.0 1.0 2.0 3.0

EM Funds by Currency

Hard Currency

Local Currency

Blend

EM Funds by Region

GEM Fund Totals

Asia ex-Japan Fund Totals

Latin America Fund Totals

EMEA Fund Totals

Developed Market Funds

Global Fund Totals

Global

Global ex-USA

Canada

USA Fund Totals

High Yield

Munis

Tips

Western Europe

Japan Fund Totals

Pacific Fund Totals

Australia

-2.0 0.0 2.0 4.0 6.0 -50 0 50 100 150 -20 -10 0 10 20 30

0 2 4 6

All Fund Totals

Developed Mkts Fund Total

Emerging Mkts Fund Totals

Last week (USDbn)

0.0 2.0 4.0 6.0 8.0

Last 4 weeks (USDbn)

0 50 100 150 200

Year To Date (USDbn)

0.0 5.0 10.0

Year To Date (% AUM)

-0.25 0.00 0.25 0.50

Estimated Country Flows…

Emerging Asia

China

Indonesia

Korea (South)

Malaysia

Latin America

Brazil

Colombia

Mexico

Peru

Emerging Europe and Africa

Hungary

Poland

Russia

South Africa

Turkey

Middle East

0.0 0.2 0.4 0.6 0 2 3 5 6 8 9 11 12 0 5 10


02 September 2016

18

Chart 60. Active weights with respect to EMBI Global (EXD) and GBI EM Global Div (LCD) for the moths of July 2016. Red means overweight and grey means underweight.


EXD LCD

-3 -2 -1 0 1 2 3

Thailand

Malaysia

Nigeria

Poland

Colombia

Hungary

South Africa

Turkey

Romania

Peru

Philippines

Chile

Mexico

Russia

Indonesia

Brazil

Active Weight % (OW)-4 -2 0 2 4 6

Philippines

Lebanon

Chile

Hungary

Poland

Croatia

Uruguay

Malaysia

Panama

Serbia

Romania

South Africa

Iraq

China

Bolivia

Vietnam

Ecuador

Ghana

Jordan

Kazakhstan

Nigeria

Zambia

Gabon

Pakistan

Egypt

Peru

Colombia

Guatemala

Morocco

Venezuela

Turkey

Ukraine

India

Indonesia

Russia

Argentina

Brazil

Mexico

Active Weight % (OW)


02 September 2016

19

Equity funds: Cross-sectional comparison (% of AuM)

Chart 61. By country (represent flows into the dedicated country funds) Chart 62. Cumulative flows by year into Emerging Market equity funds


Chart 63. By region Chart 64. By sector (flows into the sector equities as estimated by EPFR


-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

Col

ombi

a

Mal

aysi

a

Bra

zil

S. A

fric

a

Tai

wan

UA

E

Chi

le

Indi

a

Egy

pt

Qat

ar

Gre

ece

Rus

sia

Tha

iland

Chi

na

Mex

ico

S. K

orea

Indo

nesi

a

Tur

key

Pol

and

Phi

lippi

nes

Per

u

Last Week Flow (% of AuM) 4 Week Average

-80

-60

-40

-20

0

20

40

60

Jan Feb Mar Apr May Jun Aug Sep Oct Nov Dec

2011 2012 2013 2014 2015 2016

USDbn

-0.3%

-0.2%

-0.1%

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

GEM Lat-Am USA Global EMEA WesternEurope

Asia exJapan

Japan


0.00%

0.05%

0.10%

0.15%

0.20%

0.25%

0.30%

Con

s. S

tapl

es

Util

ities

Ene

rgy

Mat

eria

ls IT

Con

s. D

isc.

Tel

ecom

Fin

anci

als

Indu

stria

ls

Hea

lthC

are



02 September 2016

20

Fund flows: By category

Chart 65. By ETFs and non-ETFs – All EM equity funds (% AuM) Chart 66. By Active and Passive – All EM equity funds (% AuM)


Chart 67. By Retail and Institutional – All EM equity funds (% AuM) Chart 68. Cumulative flows into bond, equity and money market funds


-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%


ETFs Non ETFs (RHS)

-4%

-2%

0%

2%

4%

6%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%


Active funds Passive funds (RHS)

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%


Retail funds Institutional funds

-150

-50

50

150

250

350

450


Total Bond Funds Total Equity Funds Money Market Funds

USDbn


02 September 2016

21

Chart 69. Outflows streak – EM equity funds

Source: EPFR Global, MSCI, HSBC

Chart 70. EM fund flow strength index* vs. 12M subsequent performance of MSCI EM

Note: * Fund flow strength index (FSI) is calculated similar to RSI for the equity index. FSI smoothed for the last 52-weeks acts as a contrarian indicator to the subsequent returns. Helps in identifying the inflection points Source: EPFR Global, MSCI, HSBC

200

400

600

800

1000

1200

1400

Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

Weeks of outflows from EM equity funds MSCI EM price index (USD)

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Fund Flow Strength Index of EM Subsequent 12M returns on MSCI EM (%, RHS)


02 September 2016

22

Equity weekly flow (% of AuM)

Chart 71. All Equity Funds Chart 72. All Emerging Market Equity Funds Chart 73. GEM Equity Funds


Chart 74. Asia ex Japan Equity Funds Chart 75. Latin America Equity Funds Chart 76. EMEA Equity Funds


-0.5%

-0.4%

-0.3%

-0.2%

-0.1%

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

2013 2014 2015 2016

Flow (% of AuM)

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2013 2014 2015 2016

Flow (% of AuM)

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2013 2014 2015 2016

Flow (% of AuM)

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2013 2014 2015 2016

Flow (% of AuM)

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2013 2014 2015 2016

Flow (% of AuM)

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

2013 2014 2015 2016

Flow (% of AuM)


02 September 2016

23

Equity flows and performance

Chart 77. All Equity Funds Chart 78. All Emerging Market Equity Funds Chart 79. GEM Equity Funds

Source: MSCI, EPFR Global, Thomson Reuters Datastream, HSBC Source: MSCI, EPFR Global, Thomson Reuters Datastream, HSBC Source: MSCI, EPFR Global, Thomson Reuters Datastream, HSBC

Chart 80. Asia ex Japan Equity Funds Chart 81. Latin America Equity Funds Chart 82. EMEA Equity Funds

Source: MSCI, EPFR Global, Thomson Reuters Datastream, HSBC Source: MSCI, EPFR Global, Thomson Reuters Datastream, HSBC Source: MSCI, EPFR Global, Thomson Reuters Datastream, HSBC

0%

5%

10%

15%

20%

25%

30%

0%

1%

2%

3%

4%

5%

6%

7%

8%

2013 2014 2015 2016

Cumulative flow (% of AuM)

Cum. return on MSCI ACWI equity USD index (RHS)

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

-20%

-15%

-10%

-5%

0%

5%

10%

2013 2014 2015 2016


Cum. return on MSCI EM equity USD index (RHS)

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

-12%-10%-8%-6%-4%-2%0%2%4%6%8%

2013 2014 2015 2016


Cum. return on MSCI EM equity USD index (RHS)

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

-20%

-15%

-10%

-5%

0%

5%

10%

2013 2014 2015 2016


Cum. return on MSCI EM Asia equity USD index (RHS)

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

2013 2014 2015 2016


Cum. return on MSCI EM LatAm equity USD index (RHS)

-60%

-50%

-40%

-30%

-20%

-10%

0%

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

2013 2014 2015 2016


Cum. return on MSCI EM EMEA equity USD index (RHS)


02 September 2016

24

Chart 83. Last week’s flows (% of AuM) into equity funds – thematic map


Colour Legend

<-3% -3.0% to -2.0% -2.0% to -1.0% -1.0% to 0.0% 0.0% to 1.0% 1.0% to 2.0% 2.0% to 3.0% >3%


02 September 2016

25

Chart 84. Year-to-date flows (% of AuM) into equity funds – thematic map (based on monthly flows data)


Colour Legend

<-45% -45.0% to -30.0% -30.0% to -15.0% -15.0% to 0.0% 0.0% to 15.0% 15.0% to 30.0% 30.0% to 45.0% >45.0%


02 September 2016

26

About EPFR Global:

EPFR tracks both traditional and alternative funds

with around USD24trn in total assets under

management (AuM). Approximately 70% of money

invested in these funds comes from institutional

investors − primarily pension funds and insurance

companies. Funds covered by EPFR are domiciled

across the globe with investment focus on the US,

Western Europe, Japan, Pacific, Asia ex-Japan,

EMEA and Latin America. The fund base includes

dedicated country funds.

Salient definitions/points:

Net Fund Flows: investor purchases/redemptions for

individual funds and for various fund categories

Net Flows calculations exclude portfolio performance

and currency fluctuations

Tracks beginning of period and end of period asset

levels and flows by fund

Weekly Net Flows: investor purchases/redemptions

of fund shares (USD terms)

Weekly Net Flows (% of AuM): investor

purchases/redemptions based on beginning of the

week assets (% terms)

Calculation of Weekly Net Flows:

Weekly Net Flows = (Weekly Net Change) – (Weekly

Portfolio Change)

Weekly Net Change = (Assets EoW) – (Assets BoW)

– (Weekly Forex Change)

Weekly Portfolio Change = (Assets BoW) x Weekly

performance of the fund*

*Change in NAV per share includes any dividend

distributions

Country Flows:

The country flow data provided in this report

represent Net Fund Flows into the dedicated funds

for that particular country and not the total inflows

into the country’s stock market. We believe that by

looking at the dedicated fund flow data, we are

better positioned to gauge investor sentiment

towards that country.

Sector Flows:

Estimated by EPFR, the sector flow data provided

in this report represent the Net Total Flows (from

the sample of funds) into the equities of that

sector. EPFR considers the ‘total flows into equity

sector funds’ and ‘the positioning of the GEM

equity funds in the individual sectors’ in order to

calculate the sector flows.

Early signalling system:

We have constructed an early signalling system

using weekly the EPFR Global fund flows to

emerging markets database. We have used

moving averages (MA) to smooth the data. We

found the 4 week MA to be useful for analysing

trends over time horizons ranging from a few

months to years, and the weekly data was helpful

in detecting short-run shifts in flows to EM. The

width of the confidence band is calculated based

on the volatility of the weekly flows over the

preceding 12 months, measured in standard

deviations (SDs). The confidence band is 2.5 SDs

wide, i.e. 1.25 SDs on the upper bound and 1.25

SDs on the lower bound of the 4 week MA. The

stars represent the breakout from the range. The

stars at the bottom denote a potential bottom and a

star at the top denote a potential high.

Caveats:

One should bear in mind that the data provided by

EPFR is derived from a representative sample of

the investment industry and therefore does not

represent the industry as a whole.

Appendix


02 September 2016

27

Disclosure appendix

Analyst Certification

The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject security(ies) or issuer(s) and/or any

other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific

recommendation(s) or views contained in this research report: Bertrand Delgado, Kishore Muktinutalapati and John Lomax

Important disclosures

Equities: Stock ratings and basis for financial analysis

HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations and

that investors utilise various disciplines and investment horizons when making investment decisions. Ratings should not be used or relied on in isolation as investment advice. Different

securities firms use a variety of ratings terms as well as different rating systems to describe their recommendations and therefore investors should carefully read the definitions of the ratings

used in each research report. Further, investors should carefully read the entire research report and not infer its contents from the rating because research reports contain more complete

information concerning the analysts' views and the basis for the rating.

From 23rd March 2015 HSBC has assigned ratings on the following basis:

The target price is based on the analyst’s assessment of the stock’s actual current value, although we expect it to take six to 12 months for the market price to reflect this. When the target

price is more than 20% above the current share price, the stock will be classified as a Buy; when it is between 5% and 20% above the current share price, the stock may be classified as a

Buy or a Hold; when it is between 5% below and 5% above the current share price, the stock will be classified as a Hold; when it is between 5% and 20% below the current share price, the

stock may be classified as a Hold or a Reduce; and when it is more than 20% below the current share price, the stock will be classified as a Reduce.

Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation or resumption of coverage, change in target price or estimates).

Upside/Downside is the percentage difference between the target price and the share price.

Prior to this date, HSBC’s rating structure was applied on the following basis:

For each stock we set a required rate of return calculated from the cost of equity for that stock’s domestic or, as appropriate, regional market established by our strategy team. The target

price for a stock represented the value the analyst expected the stock to reach over our performance horizon. The performance horizon was 12 months. For a stock to be classified as

Overweight, the potential return, which equals the percentage difference between the current share price and the target price, including the forecast dividend yield when indicated, had to

exceed the required return by at least 5 percentage points over the succeeding 12 months (or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as

Underweight, the stock was expected to underperform its required return by at least 5 percentage points over the succeeding 12 months (or 10 percentage points for a stock classified as

Volatile*). Stocks between these bands were classified as Neutral.


02 September 2016

28

*A stock was classified as volatile if its historical volatility had exceeded 40%, if the stock had been listed for less than 12 months (unless it was in an industry or sector where volatility is low)

or if the analyst expected significant volatility. However, stocks which we did not consider volatile may in fact also have behaved in such a way. Historical volatility was defined as the past

month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating, however, volatility had to move 2.5 percentage points past the

40% benchmark in either direction for a stock's status to change.

Rating distribution for long-term investment opportunities

As of 02 September 2016, the distribution of all independent ratings published by HSBC is as follows:

Buy 43% (24% of these provided with Investment Banking Services)

Hold 41% (26% of these provided with Investment Banking Services)

Sell 16% (18% of these provided with Investment Banking Services)

For the purposes of the distribution above the following mapping structure is used during the transition from the previous to current rating models: under our previous model, Overweight =

Buy, Neutral = Hold and Underweight = Sell; under our current model Buy = Buy, Hold = Hold and Reduce = Sell. For rating definitions under both models, please see “Stock ratings and

basis for financial analysis” above.

For the distribution of non-independent ratings published by HSBC, please see the disclosure page available at http://www.hsbcnet.com/gbm/financial-regulation/investment-

recommendations-disclosures.

To view a list of all the independent fundamental ratings disseminated by HSBC during the preceding 12-month period, please see the disclosure page available at

www.research.hsbc.com/A/Disclosures.

HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments, both equity and debt (including derivatives) of companies covered in HSBC Research

on a principal or agency basis.

Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking, sales & trading, and principal trading revenues.

Whether, or in what time frame, an update of this analysis will be published is not determined in advance.

Economic sanctions imposed by the EU and OFAC prohibit transacting or dealing in new debt or equity of Russian SSI entities. This report does not constitute advice in relation to any

securities issued by Russian SSI entities on or after July 16 2014 and as such, this report should not be construed as an inducement to transact in any sanctioned securities.

For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company available at www.hsbcnet.com/research. In order to find

out more about the proprietary models used to produce this report, please contact the authoring analyst.


02 September 2016

29

Additional disclosures

1 This report is dated as at 02 September 2016.

2 All market data included in this report are dated as at close 01 September 2016, unless a different date and/or a specific time of day is indicated in the report.

3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are

involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier

procedures are in place between the Investment Banking, Principal Trading, and Research businesses to ensure that any confidential and/or price sensitive information is handled in an

appropriate manner.

4 You are not permitted to use, for reference, any data in this document for the purpose of (i) determining the interest payable, or other sums due, under loan agreements or under other

financial contracts or instruments, (ii) determining the price at which a financial instrument may be bought or sold or traded or redeemed, or the value of a financial instrument, and/or (iii)

measuring the performance of a financial instrument.

MSCI Disclaimer

The MSCI sourced information is the exclusive property of MSCI Inc. (MSCI). Without prior written permission of MSCI, this information and any other MSCI intellectual property may not be

reproduced, redisseminated or used to create any financial products, including any indices. This information is provided on an “as is” basis. The user assumes the entire risk of any use made

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third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. MSCI and the MSCI indexes are services marks of MSCI and its

affiliates.

Production & distribution disclosures

1 This report was produced and signed off by the author on 02 Sep 2016 06:20 GMT.

2 In order to see when this report was first disseminated please see the disclosure page available at https://www.research.hsbc.com/R/34/fXMJHXK


02 September 2016

30

Disclaimer Legal entities as at 1 July 2016

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Global Head of Emerging Markets Research Dr. Murat Ulgen +44 20 7991 6782 [email protected]

Senior EM Strategist Bertrand Delgado +1 212 525 0745 [email protected]

EM Strategist Ali Cakiroglu +44 20 7991 0547 [email protected]

EM Fixed Income Research

Americas

Alejandro Mártinez-Cruz +1 212 525 3022 [email protected]

Asia

Head of Global EM Rates Research André de Silva, CFA +852 2822 2217 [email protected]

Pin Ru Tan +65 6658 8782 [email protected]

Himanshu Malik +852 3941 7006 [email protected]

Dayeon Hong +852 2996 6569 [email protected]

EMEA

Tom Nash +44 20 7991 5022 [email protected]

EM Currency Strategy

Asia

Head of Global Emerging Markets FX Research Paul Mackel +852 2996 6565 [email protected]

Ju Wang +852 2822 4340 [email protected]

Joey Chew +852 2996 6568 [email protected]

Alastair Pinder +852 2822 1672 [email protected]

Americas

Clyde Wardle +1 212 525 3345 [email protected]

CEEMEA

Murat Toprak +44 20 7991 5415 [email protected]

Dominic Bunning +44 20 7992 2113 [email protected]

EM Equity Strategy

Asia

Deputy of Equity Research and Head of Equity Strategy, Asia-Pacific Herald Van Der Linde +852 2996 6575 [email protected]

Devendra Joshi +852 2996 6592 [email protected]

EMEA

Head of Global Emerging Market Equity Strategy John Lomax +44 20 7992 3712 [email protected]

Kishore Muktinutalapati +91 80 4555 2756 [email protected]

Americas

LatAm Equity Strategist

Nicholas D Smithie 1 212 525 5350 [email protected]

Erika Lucchesi 54 11 4323 4715 [email protected]

Mexico Equity Strategist

Jaime Aguilera +52 55 5721 2379 [email protected]

Southern Cone & Andean Equity Strategist

Francisco Schumacher, CFA +1 212 525 4430 [email protected]

Yevgeniy Shelkovskiy +1 212 525 3035 [email protected]

Economics

Latin America

Chief Economist, South America Javier Finkman +54 11 4344 8144 [email protected]

Ramiro D Blazquez +54 11 4348 2616 [email protected]

Jorge Morgenstern +54 11 4130 9229 [email protected]

Chief Economist, Mexico Alexis Milo +52 55 5721 2172 [email protected]

Emerging Europe, Middle East and Africa

Chief Economist, CEEMEA Simon Williams +971 4 507 7614 [email protected]

Economist, Russia and CIS Artem Biryukov +7 495 721 1515 [email protected]

Melis Metiner +44 20 3359 2636 [email protected]

David Faulkner +27 11 676 4569 [email protected]

Agata Urbanska-Giner +44 20 7992 2774 [email protected]

Asia Pacific

Managing Director, Co-head Asian Economics Research and Chief Economist Greater China Qu Hongbin +852 2822 2025 [email protected]

Managing Director, Co-head Asian Economics Research Frederic Neumann +852 2822 4556 [email protected]

Chief Economist, Australia and New Zealand Paul Bloxham +61 2925 52635 [email protected]

Chief Economist, India Pranjul Bhandari +91 22 2268 1841 [email protected]

Su Sian Lim +65 6658 8783 [email protected]

Sophia Ma +86 10 5999 8232 [email protected]

Joseph Incalcaterra +852 2822 4687 [email protected]

Julia Wang +852 3604 3663 [email protected]

Nalin Chutchotitham +662 614 4887 [email protected]

GEMs Research Team

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