Inflows to Frontier Market funds, which have been a key driver of outperformance relative to emerging markets, resumed after a small pullback in June, says BofA in a latest report. The latest weekly flow data shows a further
3.5% of AUM added to Global Frontier funds vs. GEM funds seeing outflows equivalent to 0.2% of AUM. With only two weeks of net outflows so far this year, total inflows into Global Frontier funds YTD is now more than $1.3b or
44% of AUM.
According to the research, GEM funds cut positioning in Qatar even as it outperformed and was given EM status by MSCI at the start of the month. In contrast, the allocation to the UAE was increased even as the market underperformed. Saudi, Kenya and Vietnam are among the other markets to see GEM fund positioning increase
Global Frontier funds continue to attract new money at an unprecedented rate: half of all weekly inflows this year have been at least 2% of AUM and total inflow now totals $1.3bn or 43% of AUM. GEM funds, which have seen inflows of just 2.6% of AUM, have consistently increased their allocation to the UAE, Saudi, Kenya and Vietnam over the past 12 months.
The UAE, which is the world’s best performing market YTD (+62%) has seen 2013 earnings growth estimates rise by around 500bps YTD to 12.5% (vs. 9.8% in EM). 2014 earnings growth estimates have slowed by around 200bps YTD to 10% (vs. 11.4% in EM). 2013 PE has increased to 12x from 8x at start of year while 2014 PE has increased to 11x from 7x.
However, the UAE’s momentum is expected to slow in-line with the recent fall in risk appetite.