Martin Gilbert, chief executive of Aberdeen Asset Management, said he is cautiously optimistic on the outlook for emerging markets, which have had higher flows and performance than developed markets so far this year.

Gilbert spoke to Jake Moeller, head of Lipper UK & Ireland research at Thomson Reuters, last week in London for a podcast.

“I am being cautious as Aberdeen has not seen a massive increase in flows into emerging markets,” Gilbert added. “There has been a slowdown of outflows and an improvement in shorts being taken off.”

Calamos Investments, the US fund manager, said in note that so far in 2016 emerging market equity funds have enjoyed higher net flows than their developed market equivalents and have posted better performance. The note said: “Fund flows and performance tend to go hand in hand, and when there’s a change in direction, it’s often a multiple year trend. From 2009 through 2012, emerging markets outperformed and saw stronger flows than developed markets—is 2016 just the beginning ?”

Alex Wolf, emerging market economist at Standard Life Investments, said in a report that emerging markets have largely stabilised though (with few exceptions) are yet to show signs of meaningful acceleration.

“Despite mixed analysis regarding the timing of the next Fed hike, market participants appear confident liquidity will not be a concern,” Wolf added. “With a substantial portion of developed market bonds producing negative yields, investors are returning to emerging markets in search of yield opportunities. As a result, fund flows, though taking a breather in August, have been strong over the summer months across both equity and fixed income.”

Pimco said in a note that the firm has increased its allocation to emerging market equities as the “three C’s” (China, commodities, currencies) that were a headwind to EM performance over the last three years have abated.

“In conjunction, inflation in emerging markets is starting to cool off and growth is accelerating,” added Pimco. “We think the elements are in place for earnings recovery and a re-rating of emerging versus developed markets.”

Gilbert said emerging market retail funds would see flows after exchange-traded funds.

He added: ‘“Emerging markets are where growth is in the world but we need a way to capture that growth and make money for our clients. So, finding the right companies is important and our offices in emerging markets are important for research.”

Aberdeen Asset Management is viewed as an emerging market specialist and it’s share price fluctuates according to confidence in these markets. In February this year when Lipper published a briefing with Gilbert, the fund manger’s shared had suffered an annual drop of 46% but have since rebounded as emerging markets have also rebounded.

Moeller said in February: “Emerging markets, to which much of Aberdeen’s fortunes have been tethered, have dramatically fallen out of favor with investors. Assets under management—as cited in its annual reports—show a decline from £324bn in September 2014 to £284bn in 2015.”

That month Anne Richards, Aberdeen’s former chief investment office, also resigned after 13 years to become chief executive of rival UK manager M&G and the senior team has since been reorganised.

On the question of Brexit, the UK vote to leave the European Union, Gilbert said asset managers are the least affected in financial services.

“Most fund managers distribute funds into Europe from Luxembourg,” said Gilbert. “However there will be a significant issue over the passport to sell funds from the UK into Europe.”

Sean Tuffy, head of regulatory intelligence at Brown Brothers Harriman in Dublin, said in a blog today that Brexit will result in the UK losing access to the AIFMD passport, which covers alternative funds such as hedge funds, private equity, and private debt funds.

“Contrary to Ucits regulations, AIFMD directly regulates alternative asset managers and indirectly regulates alternative funds,” added Tuffy. “As a result, there are specific provisions in the AIFMD that apply to EU and non-EU alternative investment fund managers.”

As a result, UK managers selling alternative products in the EU will have to get approval from the national regulator of the EU country in which most of their products are sold and also have to rely on various national private placement regimes to sell their products in the trade bloc.

“In 2018 the EU is going to look at abolishing private placement all together,” continued Tufty. “When this becomes the case, UK managers are going to have to make some decisions. If it appears that the UK is on course for an ugly breakup from the EU, then firms may want to consider establishing a presence in the EU.”

More on emerging markets:

• Brexit Accelerates EM Flows
• Some Fund Managers Keep Faith in Turkey
• Fund Managers Disagree on EM Outlook