Inflows into US portfolio assets slowed but remained in net inflow

Overview

This report is Nomura's Asia FX strategy team's weekly update on high-frequency investor flows, focusing on changes in overseas investor inflows into US equity and bond funds, emerging market ETFs, Korean retail purchases of US assets, and Taiwan investors' buying and selling of USD bond ETFs. The core conclusion is that flows generally slowed from the previous week, but most asset classes still maintained net inflows, indicating resilient demand for US portfolio assets and some risk assets.

Core views

US-related portfolio assets still received net overseas inflows, but momentum was weaker than in the previous week. Equity funds were the main support, with US-related equity ETFs and mutual funds receiving USD1.5bn from July 17 to 23, while bond funds received only USD106mn. Emerging market ETFs also slowed but remained in net inflow, suggesting that risk appetite has not clearly reversed. Korean retail buying of US assets pulled back from elevated levels, while Taiwan investors were still selling USD bond ETFs, though the scale of selling narrowed.

Analysis framework

The report uses high-frequency fund flow and regional investor trading data to compare the latest five trading days, the previous five trading days, and month-to-date cumulative flows on a weekly window, and presents breakdowns for US equities, US bonds, emerging market equities and bonds, Korean retail buying of US assets, and Taiwan USD bond ETF flows.

Methodology notes

• Flow trackingProxy indicator for overseas flows into US equity funds

  Uses ETFs and mutual funds listed or registered in non-US markets and investing in US equities as a proxy for non-US retail and institutional investor inflows into US equity funds.

  This approach relies on fund registration and listing location to infer investor origin, so it is better suited to observing direction and trend changes rather than precisely measuring all cross-border flows.

• Flow trackingProxy indicator for overseas flows into US bond funds

  Uses funds listed in non-US markets and investing in US bonds as a proxy for overseas investor inflows into US bond funds.

  This measure shows that inflows into US bond funds were small in the latest week, and that month-to-date inflows in July only partly offset June's outflows.

• Flow trackingProxy indicator for overseas flows into emerging market ETFs

  Uses funds listed outside emerging markets and investing in emerging market assets as a proxy for overseas investor inflows into emerging market funds.

  This proxy indicator shows that inflows into emerging market ETFs slowed in the latest week, but cumulative inflows so far in July still exceeded those in June.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• US equity ETFs and mutual funds

  The main assets absorbing net overseas inflows

  Strengths

  Still received USD1.5bn of inflows in the latest week and USD9.1bn cumulatively so far in July, showing continued allocation demand.

  Weaknesses

  Weekly inflows were below the previous week, and cumulative inflows so far in July were lower than in June, indicating marginally slower momentum.

  Comparison

  Compared with US bond funds, equity funds contributed the vast majority of net inflows into US-related funds.

  Risks

  If risk appetite declines or the attractiveness of USD assets weakens, inflows into equity funds may continue to slow.

• US bond ETFs and mutual funds

  Assets receiving modest net overseas inflows

  Strengths

  So far in July, they have shifted from large outflows in June to modest net inflows.

  Weaknesses

  Only received USD106mn in the latest week, clearly smaller than equity funds.

  Comparison

  Compared with equity funds, the improvement in flows into US bond funds has been limited.

  Risks

  Rate volatility, FX risk, and reallocation pressure may continue to restrain buying of bond funds.

• Emerging market-related ETFs

  Assets for observing risk appetite and global allocation demand

  Strengths

  Still received USD2.2bn in the latest week, with cumulative inflows of USD6.0bn so far in July, above June.

  Weaknesses

  Inflows slowed from USD3.0bn in the previous week.

  Comparison

  Flow performance so far in July has been stronger than in June, showing that emerging market allocation remains resilient.

  Risks

  If the dollar strengthens, global risk appetite falls, or local pressures in emerging markets rise, inflows may reverse.

• Locally listed USD bond ETFs in Taiwan

  Assets for observing Taiwan investors' USD bond allocation

  Strengths

  Net selling narrowed from USD382mn in the previous week to USD289mn.

  Weaknesses

  They remain in continued net outflow, with cumulative net selling of USD1.1bn so far in July.

  Comparison

  Unlike Korean retail investors' continued net buying of US assets, Taiwan USD bond ETFs are still under redemption pressure.

  Risks

  If expectations for USD rates or FX move unfavorably, outflows from USD bond ETFs may continue.

Key data

• Overseas inflows into US-related fundsUSD1.566bnLatest five trading days from July 17 to 23, below USD2.464bn in the previous week.
• Inflows into US-related equity fundsUSD1.460bnJuly 17 to 23; cumulative USD9.069bn so far in July, versus USD13.530bn in June.
• Inflows into US-related bond fundsUSD106mnJuly 17 to 23; cumulative USD219mn so far in July, versus outflows of USD2.662bn in June.
• Inflows into emerging market-related ETFsUSD2.207bnJuly 17 to 23, below USD2.985bn in the previous week; cumulative USD6.000bn so far in July.
• Korean retail net buying of US portfolio assetsUSD687mnJuly 18 to 24, including USD648mn in US equities and USD39mn in US bonds; cumulative USD2.847bn so far in July.
• Taiwan investors' net selling of USD bond ETFsUSD289mnJuly 17 to 23, with selling smaller than the previous week's USD382mn; cumulative net selling of USD1.133bn so far in July.

Impact & implications

The slowdown in flows implies that previous buying momentum for US assets and emerging market ETFs has cooled, but continued net inflows indicate that global investor risk appetite and demand for US asset allocation have not clearly reversed. Equities remain more favored than bonds, and Korean retail investors are still one of the marginal sources of buying in US assets; continued outflows from Taiwan USD bond ETFs suggest that the fixed-income segment still faces reallocation or redemption pressure.

Risks

• The report uses proxy indicators to estimate overseas flows and may not capture all actual cross-border investor behavior.
• Weekly high-frequency data are volatile, so a one-week slowdown does not necessarily signal a trend reversal.
• There is not a one-to-one relationship between flows and asset price performance, so judgments still need to incorporate FX, rates, valuations, and risk appetite.
• Continued outflows from Taiwan USD bond ETFs may reflect pressure on fixed-income allocation, but the reasons need further validation in conjunction with the rate and FX environment.

What to watch

• Whether US-related equity funds can continue to maintain net inflows, or shift from slowing to outflows.
• Whether the modest inflows into US bond funds so far in July can continue to offset June's outflows.
• Whether inflows into emerging market ETFs continue to stay above June levels in the second half of July.
• Whether Korean retail buying of US equities and bonds continues to pull back.
• Whether net selling of Taiwan USD bond ETFs narrows further or widens again.