Emerging market equities have performed relatively well in the past months. One of the reasons is that the concerns about China have been pushed to the background in recent months. 

## EM equities have performed nicely since March

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## EM equities boosted by China and a weaker Europe

In reaction to a persistently weakening trend in economic data, the Chinese authorities announced a fresh stimulus package back in early April. Effects of those measures became visible pretty quickly in higher infrastructure investment growth, among others. China also profited from a rise in export growth as the global growth picture improved. 

Also in relative terms emerging markets looked a bit better, something which is largely the result of weaker European economic data and the increased risk to the European growth outlook coming from the conflict with Russia about Ukraine. 

## Stabilising economic momentum and lower expectations

Furthermore, although the EM growth momentum continues to be weak, it has not deteriorated anymore in recent months. The EM economic surprise index has declined a bit recently, but remains close to zero. Expectations are clearly not as high as they used to be. This is also reflected in relative valuations of EM equities, which are firmly below their five-year average.

## Strong inflow into EM equity funds

Moreover, we have seen strong fund flows in the past months. Even in weeks when general risk aversion pushed markets lower, EM equity funds received fresh money. In the past two months, weekly inflows have averaged US$ 2 billion. Of course, fund flows can reverse quickly and should never be the main reason to like a market, but their resilience in difficult times does say something about the strength of an investment theme.

## We hold on to our overweight position in EM equities

At this point, it is mainly the negative dynamics in Europe that justify a more positive stance towards emerging markets. These worsened dynamics probably have diverted a significant part of investment flows from Europe to EM equities. 

Stabilising growth, more realistic expectations, low relative valuations and good fund flows are positive factors as well, but  are not very convincing given the still negative fundamentals in the emerging world. Nevertheless, as long as flows into EM equities remain significant, we do not see enough reason to reduce our (small) overweight position in EM equities.