BlackRock’s EM ETF Loses Billions on China ‘Volatility Machine’

Money managers yanked billions out of a BlackRock exchange-traded fund that buys emerging market stocks as mounting evidence of a weakening Chinese economy pushed investors to dump the nation’s equities.

BlackRock’s $17.4 billion iShares MSCI Emerging Market ETF, known by its ticker EEM, saw about $1.5 billion in outflows in August — its largest monthly loss since October, according to data compiled by Bloomberg. The fund tracks a market cap-weighted portfolio of EM stocks, with a 21.9% allocation to China, its largest country exposure.

“Vanilla benchmark EM indices have a construction problem as they are too reliant on China,” said Todd Sohn, an ETF analyst at Strategas Securities. “China is a major volatility machine, and most investors likely aren’t looking for that kind of exposure.” 

And concerns are only deepening. Over the weekend, China reported that factory activity contracted for a fourth straight month in August amid a weakening property market that continues to drag on the economy, highlighting the urgency of government intervention to keep an increasingly unlikely growth target in sight.

Beijing has struggled to contain the property downturn and now faces the prospect of increasing protectionism and a shaky global outlook weighing on exports. Several rounds of stimulus have failed to revive domestic demand, endangering the government’s growth target and spurring economists to call for more action.

“The landscape for investing in China will continue to remain cloudy,” said Brendan McKenna, an emerging markets economist and FX strategist at Wells Fargo. “The policy direction remains unclear, while tensions with the U.S. are likely to continue regardless of who wins in November.” 

While some funds with exposure to Chinese assets continue to bleed funds, EM ex-China strategies remain a popular as the Federal Reserve nears the start of its easing cycle. The $15.9 billion iShares MSCI Emerging Markets Ex-China ETF, known by its ticker EMXC, drew $1.4 billion in inflows in August.

One of the more mainstream ETF trends “today is the growth of EM ex-China strategies,” Sohn added. 

Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $431.8 million in the week ended Aug. 30, compared with gains of $553.4 million in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $4.01 billion.

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Following are tables detailing net flows for emerging-market ETFs in US dollars. The data include the holdings-weighted allocations from multi-country funds, as well as country-specific funds. Latest and historic flows are allocated using latest fund weightings :

Regional Summary

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Americas

Asia Pacific

Europe, Middle East & Africa

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