Emerging markets are still drawing investor dollars in the wake of the recent sell-off over the crisis in Turkey, according to a UBS report. Turkey, a top pick among investors lately, drew $191 million in inflow last week, its highest weekly inflows in more than five years, according to EPFR data. (See also: Take Caution With Emerging-Market Stocks: Goldman.)
"Based on our flows-based investor positioning model, Turkey replaced Colombia as the most crowded emerging market, while Brazil replaced India as the second least crowded market after Russia," said a UBS report. China had a reported inflow of $100 million.
In countries marking a outflow, Brazil reported the largest leakage, $407 million, followed by South Africa and Mexico with $47 million each. Overall last week, outflows from the Global Emerging Markets (GEM) equity funds were $187 million.
Influence of the Turkey Crisis
Turkey’s deteriorating relationship with the U.S. as well as Turkish President Recep Erdogan’s monetary policy moves have driven the Turkish lira down 40% this year. Other currencies, like the South African rand and the Indian rupee have also plunged, weighed by the lira’s decline. Recently, the U.S. announced sanctions on Turkish officials and then significantly increased tariffs against metals from Turkey. (See also: Why the Collapse of the Turkish Lira Matters.)
Still, emerging markets are benefiting from steady economic growth following the financial crisis of 2008. Many companies in emerging markets are seeing improved balance sheets and forex reserves. Some analysts like Holger Schmeiding of Barendberg say these countries are likely to weather the storm caused by turmoil in Turkey.
"The direct exposure of other emerging markets to Turkey via trade or the banking sector is very small. A stronger USD and, in some cases, the risk of U.S. sanctions, remain serious concerns for the most exposed countries," Schmeiding wrote in a note.