Emerging market bond funds alone posted a net inflow of $5.5bn last month, higher than in March, attributed mainly to the attractive valuations of Asian bonds, the report said.
More than 85% of the inflows came from investors in Europe, it noted, and most investment was through exchange-traded funds.
Within the EM bond universe, investors preferred investment grade corporate and sovereign bonds most, and hard currency bond flows outpaced local currency flows.
Corporate high yield bonds, however, had a net outflow.
Fund managers have tended to be neutral on EM over the past two months, the report noted.
“Investors have maintained underweight positions in China and Mexico while moving from a neutral stance on Indian bonds back to underweight.”
Equities, however, were a different story. EM-focused equity funds had $500m in outflows in the same month due to redemptions from funds investing in Korea, Mexico, Thailand and China.
Viktor Nossek, director of reserach at Wisdom Tree Europe, argued that investors may be too bearish on EM equities, as “dividend yields are at a premium to corporate bond yields for liquid issuers in EM”.
On the other hand, default risk may not be fully priced-in due to the rising number of downgrades of corporate credit in EM.
“In the second quarter the ratio of downgrades to upgrades has already reached the extremes last seen in Q1 2009, with 77 downgrades versus just 13 upgrades,” Nossek wrote in a research note.
The IMF warned of rising debt risks and China’s spillover effect in Asia last week, while Schroders has doubted if EM has reached a turning point, although some others, such as Citi and Falcon Private Bank have turned more positive.
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