As we move into the second half of 2018, let’s look at the broader investment dollar flows that have dominated the economic landscape so far. This may be important for retail investors like you and me to note, because the dollar flows reflect what institutional investors believe are dominant themes for the rest of 2018.
According to flow data from EPFR Global, emerging markets (EM) equity funds saw outflows of over US$17 billion over the 10 weeks ended 11 July. Meanwhile, Europe equity funds have seen outflows of US$29.4 billion this year, while US equity funds outflows have come in at over US$18 billion. It has also been reported that EM debt funds have suffered over US$14 billion of outflows since April this year.
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Rising interest rates and the ongoing China-US trade tensions have dramatically reduced risk appetite. With the outlook uncertain, there will be a flight to quality and the need for diversification to boost portfolio resilience. Retail investors should be looking for companies with strong cash flows and/or low debt burdens (these remain core traits even in stable times!).
It’s worth noting that the economic fundamentals remain sound in many parts of the world and Japan and Europe are still maintaining loose monetary policies. The US economy has continued to strengthen throughout 2018 and has been creating jobs at a brisk pace. The US will also continue to require imports from China and other emerging countries. While trade tariffs between US and China would add as a dampener on growth, other countries with a strong manufacturing base such as South Korea, Mexico, Vietnam, and India could well benefit from the US tax on Chinese imports. Similarly, the US is such an important agricultural food exporter that even if China enacts more trade barriers, it would likely be a minor diversion in the grand scheme of things over the longer term.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.