Outflows from China, other Asian, Latin American equity and commodity funds have accelerated because investors fear an economic slowdown in China.
Foiling over-optimistic advice and predictions from the vast majority of investment bankers and brokers in December and the beginning of this year, China, India and other emerging markets have slumped.
The MSCI Broad China index tumbled 8.3 per cent in January, MSCI BRIC (Brazil, Russia, India & China) index slid 7 per cent and MSCI Emerging Asia by 5 per cent. Despite these declines the indices are still between 60 per cent and 85 per cent higher than the depressed market a year ago, so only later comers are irate that they followed over enthusiastic, if not irresponsible bullish advice.
Markets were overbought, relatively expensive and illiquid, compared with Wall Street. Moreover, illustrating that last year’s rally was from a deep bear market nadir, the three year performance is a more sedate 1.4 per cent for emerging Asia, 6.8 per cent for China and only 0.7 per cent for the MSCI BRIC index.
Michael Kahn, a technical analyst, wrote in Barrons that ‘three of the superstar (markets), Brazil, India and China have made significant technical breakdowns’. ‘The Shanghai Composite Index has made a series of lower highs and lower lows since November to fulfil the most basic definition of a declining trend.’
Emerging market equity funds posted their first week of net outflows in 12 weeks, according to EPFR Global which monitors funds managing an estimated US$12 trillion.
Outflows from the geographically diversified global emerging markets equity funds, which fell by 5 per cent in January, were the worst in 23 weeks.
BRIC equity funds saw net redemptions for the first time since early September. However, bargain hunting brought about the first inflows into China equity funds since mid-December. There were also relatively large flows of funds into emerging markets bond funds.
The possibility of weaker-than-expected Chinese and US demand for goods and commodities also weighed on Latin America equity funds, which posted collective outflows, while Taiwan equity funds - which were also hit by concerns about the outlook for the tech sector - suffered their worst week in flow terms since late August.
‘Nevertheless, the fact that Chinese authorities are acting to prevent asset bubbles and overcapacity sooner rather than later drew fresh money back into China equity funds, and the greater China equity funds that are mandated to invest in mainland China, Hong Kong and Taiwan equities,’ said Brad Durham managing director of EPFR Global.
‘Although investors were viewing emerging markets with a more jaundiced eye during the week ending Jan 27, this did not translate into a desire for greater exposure to developed markets equity,’ he said. ‘US equity funds recorded their biggest weekly outflow since late June, 2008, and Europe equity funds suffered net redemptions for the third time in five weeks.’
Investors, however committed fresh money to Japan equity funds for a fifth straight week as fourth quarter earnings reports confirmed the resilience of major export plays.
Doubts about China’s appetite for commodities and the strength of the US recovery saw commodity sector funds extend their outflow streak to four straight weeks - the longest since a five week flight that ended in late October, 2008.
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Outflows accelerate from emerging market funds
By NEIL BEHRMANN
01 February 2010
Outflows from China, other Asian, Latin American equity and commodity funds have accelerated because investors fear an economic slowdown in China.
Foiling over-optimistic advice and predictions from the vast majority of investment bankers and brokers in December and the beginning of this year, China, India and other emerging markets have slumped.
The MSCI Broad China index tumbled 8.3 per cent in January, MSCI BRIC (Brazil, Russia, India & China) index slid 7 per cent and MSCI Emerging Asia by 5 per cent. Despite these declines the indices are still between 60 per cent and 85 per cent higher than the depressed market a year ago, so only later comers are irate that they followed over enthusiastic, if not irresponsible bullish advice.
Markets were overbought, relatively expensive and illiquid, compared with Wall Street. Moreover, illustrating that last year’s rally was from a deep bear market nadir, the three year performance is a more sedate 1.4 per cent for emerging Asia, 6.8 per cent for China and only 0.7 per cent for the MSCI BRIC index.
Michael Kahn, a technical analyst, wrote in Barrons that ‘three of the superstar (markets), Brazil, India and China have made significant technical breakdowns’. ‘The Shanghai Composite Index has made a series of lower highs and lower lows since November to fulfil the most basic definition of a declining trend.’
Emerging market equity funds posted their first week of net outflows in 12 weeks, according to EPFR Global which monitors funds managing an estimated US$12 trillion.
Outflows from the geographically diversified global emerging markets equity funds, which fell by 5 per cent in January, were the worst in 23 weeks.
BRIC equity funds saw net redemptions for the first time since early September. However, bargain hunting brought about the first inflows into China equity funds since mid-December. There were also relatively large flows of funds into emerging markets bond funds.
The possibility of weaker-than-expected Chinese and US demand for goods and commodities also weighed on Latin America equity funds, which posted collective outflows, while Taiwan equity funds - which were also hit by concerns about the outlook for the tech sector - suffered their worst week in flow terms since late August.
‘Nevertheless, the fact that Chinese authorities are acting to prevent asset bubbles and overcapacity sooner rather than later drew fresh money back into China equity funds, and the greater China equity funds that are mandated to invest in mainland China, Hong Kong and Taiwan equities,’ said Brad Durham managing director of EPFR Global.
‘Although investors were viewing emerging markets with a more jaundiced eye during the week ending Jan 27, this did not translate into a desire for greater exposure to developed markets equity,’ he said. ‘US equity funds recorded their biggest weekly outflow since late June, 2008, and Europe equity funds suffered net redemptions for the third time in five weeks.’
Investors, however committed fresh money to Japan equity funds for a fifth straight week as fourth quarter earnings reports confirmed the resilience of major export plays.
Doubts about China’s appetite for commodities and the strength of the US recovery saw commodity sector funds extend their outflow streak to four straight weeks - the longest since a five week flight that ended in late October, 2008.
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