Published June 23, 2009

Drop in flow into emerging market funds

By OH BOON PING

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FUNDS flow into emerging market funds appear to be slowing down, based on the latest figures from research firm EPFR Global. Indeed, net cash taken in by all dedicated emerging market equity funds fell from an average US$3.2 billion per week between end-April and June 10 to US$1.2 billion last week.

Citigroup said the sharp decline was primarily concentrated in global emerging markets fund inflows, which were down 82 per cent week-on-week to a three-month low of US$241 million, while Asia ex-Japan funds plunged 58 per cent on a weekly basis to US$693 million. Latin-America funds dived 46 per cent compared with the week-ago figures. In Singapore, funds flow remains largely unchanged at about US$50 million last week.

Merrill Lynch said the inflows into emerging markets (EM) were concentrated in the long-only funds, while EM exchange traded funds saw the first outflows since March 4 - the week before the stock rally began.

However, Citi sees greater interest in laggards as the MSCI All Country World Index (ACWI) underperforming the EM index by 16 percentage points from March lows. 'Consequently, Global funds managed to take in US$1 billion of new money for a second week, as opposed to falling inflows to emerging market funds.'

From a four-week moving average perspective, inflows to global funds are gaining upward momentum, whereas the latter are heading south, the research house said.

Meanwhile, greater China funds saw net redemptions as net flows to all greater China equity funds turned negative for the first time in 12 weeks. 'These fund groups used to receive major shares of total net inflows to Asia, but are now the source of funding to India country funds.' Also, investors' interest in Asian ETFs continues to die down, from 64 per cent of total net inflows a week at a peak in May to the current 30 per cent.

Merrill believes that the charts point to further correction in the emerging markets, although the emerging markets index has already come down 9 per cent from recent high.

Emerging markets have 'not peaked for the year, but technical, valuation and sentiment factors argue correction in absolute and relative terms can continue in coming weeks'.