Investors Leaving China Behind While Other Emerging Markets Rally

Investors flocking to exchange-traded funds to chase the longest emerging-market stock rally since January 2013 are bypassing China.

Investors withdrew a net $42 million from ETFs focused on Chinese equities and bonds since March 20 when the MSCI Emerging Markets Index started an eight-day rally, the longest winning streak in 15 months, according to data compiled by Bloomberg. That is the only outflow from the ETFs for the so-called BRIC countries or biggest developing markets as funds investing in Brazil, India and Russia attracted a combined $422 million.

A 9.7 percent gain in the Hang Seng China Enterprises Index since March 20, the most among the world’s major benchmarks, is failing to convince investors that the worst is over following a 25 percent plunge in the past three years. A report on April 1 showed Chinese manufacturing contracted last month the most since July, underscoring what Premier Li Keqiang called “difficulties and risks” as he tries to control bond defaults and pollution that threatens to stoke public discontent.

“Foreign investors are still skittish about what’s going on there in China,” Robbert Van Batenburg, a director of market strategy at Newedge Group SA in New York, said by phone. “There’s uncertainty about bond defaults. That causes people to keep their powder dry.”

Bloomberg

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