Capital flows into EM should continue given supportive growth in EM, steady to strongcommodity prices, stable to soft USD and relatively low UST yields. In fact, recent global growthindicators, like manufacturing and service PMIs, remain solid in August, with strongperformance in EM, particularly Asia. Moreover, gradual FED and ECB tapering processes and,in the case of the Fed, limited room for aggressive fed funds tightening, should keep crossasset volatility somewhat low. Meanwhile, EM inflation remains low broadly speaking and EMCB monetary policy outlook remains in the neutral to dovish camp, both supportive for LCD.    Sure, strong performance y-t-d makes EM assets vulnerable to profit taking, yet given HSBC’sconstructive expectations on local and global conditions for EM, we still see a spike in volatilityas an opportunity to add EM risk.    During the week ended 6 September, investments to EM continued to flow at a faster clip thanto DM for the third consecutive week, in percentage of AUM. Among EM bond funds, most ofthe investments went to Mexico, Thailand, Brazil and Indonesia in USD and to Frontier marketsand South Korea in percentage of AUM. Within EM equity funds, China, South Korea, Braziland Russia captured the largest deposits in USD, whereas Frontier markets, Colombia andRussia grabbed the most inflows in AUM. Larger inflows to non-ETF and institutional fundscontinue to support EM bond funds, particularly EXD, while solid gains in ETF and institutionalfunds boosted equity funds (p.13). In DM, US funds led the gains within bond funds, with HYposting solid inflows. Meanwhile, inflows to Global equity funds supported DM despitewithdrawals from US equities.    HSBC’s early signalling system continues to suggest solid demand for EM risk, particularlybonds (p. 14). Likewise, EM fund flows momentum (p. 5) and dispersion indicators (p. 8) pointto similar dynamics. Meanwhile, Daily financial account portfolio flows show large inflows tobonds (seven countries), mainly Thailand, South Korea, Indonesia and India, but outflows fromequities (eight countries), mostly from South Africa, India and Indonesia (p. 15).

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