Demand for EM equities grows despite Ukraine crisis

The crisis in Ukraine is continuing to have very little effect on the financial markets in most other emerging countries, with the notable exception of Russia. In the past month or so, the MSCI Eastern Europe Index (in which Russia’s weighting exceeds 70%) has fallen back by around 5%. But the overall MSCI Emerging Markets Index has continued to power ahead. The boost to prices partly reflects growing demand from international investors. According to EPFR Global, net purchases of emerging market bonds and equities by global mutual funds and ETFs were positive in Q2 2014 to the tune of nearly $26bn, whereas they were negative in each of the previous four quarters. What’s more, net foreign purchases of equities in six countries in Emerging Asia (which has a majority weighting in the overall MSCI Emerging Markets Index) have been quite large so far in July.