Emerging markets have become a victim of China’s success in 2020, with money managers and investors now underweight and pulling assets from equity and debt allocations as they watch and wait for better times to resume.

The recovery in the U.S. dollar, an increase in safe-haven asset yields in the first quarter and China’s tighter monetary policy have contributed to the underperformance of emerging market assets vs. developed market assets so far in 2021.

On top of that, developed markets continue to ride the vaccine- and stimulus-induced wave of positive performance, marking these regions’ recoveries and setting them further apart from emerging markets.

Emerging markets equity funds tracked by data provider EPFR ended the second quarter of 2021 with a three-week run of outflows. For the second quarter, net inflows dropped to $15.9 billion, following $68.4 billion in net inflows for the first quarter of 2021 and $44 billion in net inflows for the fourth quarter of 2020, according to EPFR.

As of June 25, emerging markets bond funds saw an 11-week run of inflows come to an end as they posted their biggest weekly outflow since early March, according to EPFR. Figures were not available. At the end of the second quarter, investors had pumped $13 billion in net inflows to emerging markets bonds funds. That followed $11 billion in net inflows in the first quarter of 2021 and $45 billion in net inflows in the fourth quarter of last year.

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