Emerging-market funds pulling out

Emerging-market stock funds lost $1.87 billion in the week ended June 24, the first week of net outflows since early March, on concern that a rebound in exports will be delayed, EPFR Global said.

Investors withdrew $660 million from funds investing in Asia excluding Japan and pulled $457 million from Latin American equity funds, the research firm said in a statement yesterday.

“Although we're still very positive on the prospects for emerging markets in the long term, their economies remain very precarious and it is difficult to see how they are going to quickly fill this hole that has been created by the collapse in exports,” said Peter Elston, a Singapore-based strategist at Aberdeen Asset Management, which oversees $30 billion in Asia.

The MSCI Emerging Markets Index has declined 5 percent from the eight-month high on June 1. The gauge has climbed 34 percent this year as inflows from investors surged and stimulus plans from China to Brazil bolstered confidence.

“On average, the cumulative return of new moneys put into emerging-market funds since the third week of May have been flat to negative in dollar terms, which should temper enthusiasm about investors committing new funds to emerging markets in the near term,” Jonathan Garner, Morgan Stanley's chief Asian and emerging-markets strategist, said in a note.

South Korea, Mexico
Garner last week said the MSCI index for developing nations may climb to 985 in the next 12 months. He yesterday downgraded his ratings for South Korea, Turkey, Hungary and Israeli equities and raised its recommendation for Mexico, Indonesia and the Czech Republic.

The world economy will contract 2.9 percent this year, compared with a March forecast of a 1.7 percent decline, the World Bank said in a June 22 report, which led to a sell-off in global stock markets. Growth will be 2 percent next year, down from a 2.3 percent prediction, the Washington-based bank said.

The MSCI Emerging Markets Index dropped to as low as 718.56 on June 23, bringing its losses from its 2009 peak to 10 percent and marking the first so-called correction since developing- nation shares started rallying almost four months ago.

Outflows
The MSCI gauge was valued at 15.4 times reported profits at its peak this year, according to data compiled by Bloomberg. It closed last Thursday at 14.8 times.

Overall, equity funds tracked by EPFR globally posted outflows of $4.12 billion during the week, while money-market and US bond funds saw net inflows, the research company said.

The reversal “was most pronounced among Asia ex-Japan and Latin America Equity Funds,” said EPFR, a Cambridge, Massachusetts-based research company tracks funds with $10 trillion in assets. “Investors questioned where and when demand for their manufactured and commodity exports will pick up.”

China funds lost $262 million, the biggest weekly outflow since the first week of March, while those investing in the Greater China region posted net outflows of $175 million, EPFR said.

Brazil, Russia and India funds also posted net outflows even as funds focusing on the so-called BRIC markets took in more money, the statement said.