Following on from the comments made by Henk this morning in the morning meeting, fixed-income capital flows into emerging markets have been amazingly strong this year. This includes foreign capital flows into South Africa’s bond market, which now exceed R50 billion year-to-date, making it the largest inflow on record in any year. As a comparison, in 2006 foreign inflows into our bond market totaled around R30.4 billion, which has previously been the record for any year. (The inflows in July 2010 have been especially strong at R17.8bn month-to-date). This has obviously helped to keep bond yields trending lower and the Rand relatively strong in 2010. Year-to-date the SA bond market has provided a total return of 8.1%, while equities are essentially unchanged.
Globally, in total, more than $30 billion has gone into emerging market fixed income funds since the beginning of 2010, which is the strongest year-to-date pace on record (see chart attached). Sovereign and corporate borrowers have been able to issue about $40 billion and $70 billion, respectively, from international bonds year to date; which is also a remarkable performance.
By contrast, emerging market equity mutual funds have attracted far less inflows this year; just $18.5 billion through mid-July. While emerging markets equities as an asset class have fallen by less than mature equity markets, several visible markets such as Brazil and China have declined more substantially, contributing to a cautious attitude among investors.
Download the chart here