Equity Fund Flows - GEM and Russia See Negative Trend Breaks

> EMs see net weekly outflow for only second time since March. EPFR Global data show $701 mln, or 0.06% of sampled AUM, exiting EM equity funds overall in the week to October 25. During the period, the MSCI EM slipped 1.0%. This was the first instance in nine weeks and only the second time since March that EMs saw net outflow. Year-to-date, EM funds have posted $55.9 bln (6.7%) of net inflow. EPFR Global commentary that $8.8 bln came into global equity funds in the reporting week suggests that the outflow was largely a result of investors moving longer DM equities and shorter EM equities.
> EM outflows were concentrated in regional funds, especially the $1.16 bln (0.27%) that exited Asia ex-Japan funds. Funds that cover all of GEM saw net inflow of $483 mln (0.07%). EMEA saw $38.6 mln (0.09%) exit. Asia saw a number of market-relevant events over the week, most notably the Chinese Communist Party Congress and continued uncertainties about North Korea.
> This pattern was reflected in the results for BRICST, as $525 mln (0.13%) exited China. The leader in the category for the week was Turkey, which saw 0.14% of AUM, or $26.3 mln, enter the country's equities.
We think a combination of uncertainty about what would come out of the Chinese party congress, media reports that a more hawkish leader could be appointed Fed chair and expectations that the ECB would trim back its QE program may have been driving the EM/DM trade. Hopes for US tax reform have also been a factor supporting US equities versus EM for at least the last couple of weeks, in our view.
> Russia the only member of BRICST aside from China to see net outflow. Some $8.7 mln (0.02%) exited the country in the reporting week, the first instance of weekly net outflow in 10 weeks. Although the oil price technically rose 1.0% in the reporting week, the RTS fell 2.5% and the ruble gave up 0.7% versus the dollar. Year-to-date, $2.2 bln (4.7%) has entered Russian equities.
> Russia-dedicated funds saw outflow of $65.9 mln. These funds have seen outflows most of the year, but this was the first instance of weekly outflow in nine weeks. Year-to-date, $745 mln (6.2%) has flowed out of said funds. Other categories produced inflow of $57.1 mln into Russia in the reporting week, including $20.7 mln from GEM-wide funds. Though we ourselves are bullish on the market looking toward year end - see our latest Russian Eagle published at the beginning of this week for more on that - we get the impression from recent conversations with clients that many investors are bullish but looking for a particular catalyst to draw attention from their peers as well.
> Some $1.7 mln of what exited Russia in the reporting week came from passive funds, their first negative result in 10 weeks.
Year-to-date, they have seen inflow of $2.3 bln, or 15% of AUM.
> Active funds saw $7.0 mln exit. Year-to-date, they have seen outflow of $50.4 mln, equivalent to 0.2% of AUM. They formally crossed into negative territory YTD in the week of August 9 and have remained just below flat since then, with net flows nearly alternating between positive and negative from week to week.