Geopolitical risk has not stopped portfolio asset inflows
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Geopolitical risk has not stopped portfolio asset inflows
Nomura's weekly high-frequency flow tracking shows that in mid-to-late April, foreign investors continued buying US portfolio assets, EM-focused ETFs sustained strong inflows, Korean retail investors turned to net buying of US assets, and Taiwanese investors modestly bought USD bond funds.
- From April 16 to 22, foreign investors net bought about USD1.1bn of US portfolio assets, higher than the previous week's USD1.0bn.
- US bond funds swung from a net outflow of USD144mn in the previous week to a net inflow of USD758mn, the main source of the improvement in US portfolio asset inflows.
- Weekly net inflows into US equity funds fell to USD310mn, down from USD1.1bn the previous week.
- From April 17 to 23, EM-focused ETFs saw net inflows of USD1.8bn, slightly below the previous week's USD2.2bn, but still maintaining strong flow momentum.
- Korean retail investors net bought USD481mn of US portfolio assets during the week, reversing the previous week's net sale of USD535mn; Taiwanese investors modestly net bought USD16mn of USD bond funds.
Report interpretation
Overview
This report is Nomura FX Insights' weekly high-frequency investor flow update, focusing on foreign inflows into US equity and bond funds, EM-focused ETFs, Korean retail purchases of US assets, and Taiwanese investor purchases of USD bond ETFs. The core conclusion is that even though the US-Iran confrontation is ongoing, portfolio asset flows have not been meaningfully interrupted, and foreign allocation demand for US bond funds and EM-focused ETFs remains in place.
Core views
The report believes overall flows were fairly resilient in the latest week. Net inflows into US portfolio assets rose from about USD1.0bn in the previous week to USD1.1bn, with bond funds turning from outflows to inflows and offsetting the impact of slower inflows into US equity funds. EM-focused ETFs continued to record USD1.8bn in net inflows, indicating that emerging market ETFs are still supported by overseas capital. Korean retail investors shifted from net selling in the previous week to net buying of US equities and bonds, but remained cumulative net sellers of US portfolio assets month-to-date in April; Taiwanese investors modestly bought USD bond funds during the week, but were still net sellers month-to-date in April.
Analysis framework
The report uses a high-frequency fund flow tracking framework to break down and compare flows by investor group and asset class on both a weekly five-trading-day basis and a month-to-date basis. Coverage includes: foreign inflows into US-focused equity ETFs and mutual funds and US-focused bond ETFs and mutual funds; foreign inflows into EM-focused equity ETFs and bond ETFs; Korean retail investors' net buying and selling of US equities and bonds; and Taiwanese investors' flows into local USD bond ETFs.
Methodology notes
US-focused equity funds listed or registered outside the US
The report assumes that funds listed or registered outside the US and investing in US equities are mainly held by non-US retail and institutional investors, and therefore can serve as a proxy for foreign inflows into US equity funds.
US-focused bond funds listed outside the US
The report assumes that funds listed outside the US and investing in US bonds are mainly held by non-US retail and institutional investors, and therefore can be used to track foreign inflows into US bond funds.
EM-focused funds listed outside EM markets
The report assumes that funds listed outside emerging markets and investing in emerging markets are mainly held by foreign investors, and therefore can serve as a proxy for foreign inflows into EM-focused funds.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- US-focused equity ETFs and mutual fundsProxy indicator for foreign inflows into US equity assets
- Strengths
- Month-to-date in April, flows turned from a small outflow in March to net inflows, showing that US equity funds still have capital support.
- Weaknesses
- In the latest week, inflows fell to USD310mn, significantly slower than USD1.1bn in the previous week, with considerable daily flow volatility.
- Comparison
- March saw an outflow of USD104mn, while month-to-date in April inflows were USD1.5bn; however, weekly momentum weakened versus the previous week.
- Risks
- An escalation in geopolitical conflict, weaker risk appetite, or valuation pressure on US equities may continue to suppress inflows.
- US-focused bond ETFs and mutual fundsProxy indicator for foreign inflows into US bond assets
- Strengths
- In the latest week, flows turned from an outflow of USD144mn in the previous week to an inflow of USD758mn, an important source of the improvement in weekly inflows into US portfolio assets.
- Weaknesses
- Month-to-date in April still shows a small outflow of USD7mn, indicating that a strong monthly net inflow has not yet formed.
- Comparison
- March saw an outflow of USD1.4bn, while the scale of outflows narrowed sharply month-to-date in April.
- Risks
- US rate volatility, dollar volatility, and changes in credit spreads may affect the stability of bond fund flows.
- EM-focused ETFsHigh-frequency indicator of foreign allocation to emerging market assets
- Strengths
- Net inflows were USD1.8bn in the latest week and USD5.7bn month-to-date in April, extending strong flow momentum.
- Weaknesses
- Weekly inflows were slightly lower than the previous week's USD2.2bn, and bond fund inflows were smaller than equity fund inflows.
- Comparison
- March saw an outflow of USD2.9bn, while month-to-date in April turned sharply positive.
- Risks
- A stronger US dollar, weaker global risk appetite, spreading geopolitical risk, or volatility in local EM markets could weaken inflows.
- Korean retail investors' US portfolio assetsObservation window for Asian retail investors' risk appetite toward US assets
- Strengths
- Net buying reached USD481mn in the latest week, reversing the previous week's net sale of USD535mn, with both US equities and bonds seeing net buying.
- Weaknesses
- They were still net sellers of USD1.5bn month-to-date in April, indicating that the weekly rebound has not reversed the monthly outflow trend.
- Comparison
- Net buying was USD1.5bn in March, but month-to-date in April it shifted to a net sale of the same magnitude.
- Risks
- If US equity volatility or FX pressure rises, Korean retail flows may turn back to net selling.
- Taiwanese investors' USD bond ETFsIndicator of Taiwanese investors' allocation demand for USD bonds
- Strengths
- There was a modest net buy of USD16mn in the latest week, a clear improvement from the previous week's net sale of USD404mn.
- Weaknesses
- They were still net sellers of USD369mn month-to-date in April, with very small inflow size and limited improvement.
- Comparison
- March saw net selling of USD29mn, while month-to-date in April selling widened to USD369mn.
- Risks
- Volatility in USD bond yields, changes in FX expectations, or local investor redemption pressure may continue to affect flows.
Key data
- Foreign net buying of US portfolio assetsUSD1.1bnFrom April 16 to 22, higher than the previous week's USD1.0bn.
- Weekly inflows into US equity fundsUSD310mnFrom April 15 to 22, lower than the previous week's USD1.1bn; month-to-date in April inflows were USD1.5bn, versus an outflow of USD104mn in March.
- Weekly inflows into US bond fundsUSD758mnFrom April 15 to 22, versus an outflow of USD144mn in the previous week; month-to-date in April was close to flat, with an outflow of about USD7mn, after a USD1.4bn outflow in March.
- Weekly inflows into EM-focused ETFsUSD1.8bnFrom April 17 to 23, slightly below the previous week's USD2.2bn; of which equity funds were USD1.7bn and bond funds were USD139mn.
- EM-focused ETFs month-to-date inflows in AprilUSD5.7bnMarch saw an outflow of USD2.9bn, indicating a clear improvement in April flows.
- Weekly buying of US portfolio assets by Korean retail investorsUSD481mnFrom April 17 to 23, including USD380mn in US equities and USD101mn in US bonds; the previous week was a net sale of USD535mn.
- Month-to-date April flow of Korean retail investors-USD1.5bnMonth-to-date in April, they were net sellers of US portfolio assets, versus net buying of USD1.5bn in March.
- Weekly buying of USD bond funds by Taiwanese investorsUSD16mnFrom April 17 to 23, versus a net sale of USD404mn in the previous week; month-to-date in April net selling was USD369mn.
Impact & implications
The fund flow data show that geopolitical tensions have not led to a broad withdrawal from portfolio assets. In terms of market implications, the shift in US bond funds from outflows to inflows may reflect safe-haven demand, yield attractiveness, or reallocation needs; continued large inflows into EM-focused ETFs indicate that risk-asset allocation still has support. However, slower inflows into US equity funds and continued net selling month-to-date in April by Korean and Taiwanese investors suggest that investor preference is not broadly optimistic, and further attention is still needed on how geopolitical risk, the US dollar, and interest-rate volatility may disturb flows.
Risks
- If the US-Iran confrontation escalates further, it could weigh on global risk appetite and disrupt cross-border capital flows.
- Weekly inflows into US equity funds have already slowed; if daily outflows widen, overall inflows into US portfolio assets could weaken.
- Although EM-focused ETFs are still seeing inflows, they are sensitive to changes in the US dollar, interest rates, and risk appetite.
- Korean and Taiwanese investors are still net sellers month-to-date in April, indicating that signals from Asian retail flows remain unstable.
- The report uses proxy indicators to track foreign flows, and there is estimation error between fund listing location and investor origin.
What to watch
- Whether US portfolio assets can continue to maintain net inflows next week, especially whether the improvement in US bond funds from outflows to inflows can be sustained.
- Whether inflows into EM-focused ETFs broaden from equities to bonds, or begin to cool.
- Whether Korean retail investors' weekly net buying can reverse the month-to-date April net selling trend.
- Whether Taiwanese USD bond ETFs can recover from modest net buying to sustained inflows.
- Changes in the US-Iran situation, the US dollar trend, US interest rates, and global risk appetite.