Funds draw US$50m - largest amount since May 2008
By JAMIE LEE
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SINGAPORE equity funds finally got some love.
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| Still surging: The new money flowing to Asian equity funds - 10 weeks so far - is the most sustained one since November 2007, says Citi. While the consensus expectation is for a 5-10% correction, Citi analysts say it’s not likely to happen |
The laggard in Asia pulled in about US$50 million last week - the largest amount since May 2008 - a Citi report noted yesterday.
But Singapore funds are the only group that has seen negative net flows year-to-date, Citi analysts Elaine Chu and Markus Rosgen wrote.
Last week's fund inflow to Singapore represents about 3 per cent of the assets under management (AUM) here, Citi said.
The amount of money in Asian equity funds rose another 18.8 per cent to US$1.9 billion last week from US$1.6 billion two weeks earlier.
The new money flowing to Asian equity funds - 10 weeks so far - is the most sustained one since November 2007, said the Citi analysts, citing data from data provider EPFR Global.
'(There's) money chasing Taiwan equity funds,' the report noted, as new money channelled to such funds - compared with average weekly inflows between April 9 and May 6 - trebled to US$378 million.
This represents 11.4 per cent of their AUM, the highest percentage contribution when compared with contributions to regional players such as China, Hong Kong, Korea and India.
Separately, Citi has gone against the herd on its expectations of a correction on the Asian markets (excluding Japan), which have surged ahead over the past few weeks.
While the consensus expectation is for a 5-10 per cent correction - followed by a switch towards higher beta stocks - the Citi analysts said that 'it's not likely to happen'.
'The risk we see is that the markets grind higher because that is still where the pain trade lies and then roll over,' they said.
'The bears want to see more outperformance before reversing course,' the analysts said, adding: 'If a correction happens, we expect it will be 20-30 per cent with an increasingly unfavourable risk reward.'
Pain trade refers to the situation when investors go long on defensives but feel 'pain' when the market rallies.
This could force them to buy to boost their portfolios' performance against indices.
Such investors include funds, many of which are still underperforming the market, said Citi.
Citi said that the markets - which are now trading near to its mid-cycle point - are offering 1.7 times price-to-book, which historically translates to a 11-12 per cent return on equity (ROE).
'At 1.7 times price- to-book and above, we suspect it may not take much for a market correction of 20-30 per cent,' the analysts said, adding that the focus has been on liquidity and 'less on value' now.
'(The) markets have achieved in 10 weeks what normally takes 24 months,' they noted, adding that after each recovery since 1975, it has taken two years for the price- to-book to hit such levels.
Assuming that a 11-12 per cent ROE is achieved by end-2010, 'this will (be) the second shortest and second shallowest earnings recession in Asia ex-Japan since 1975', Citi noted.
'So much for the worst recession this side of WWII (World War Two).'
Citi sees value in the 'underowned' areas such as Korea and Taiwan, as well as in banks, 'which remain the most disliked sector'.
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