Thu, May 25, 2006 - Page 11 News List

Emerging market funds fall

BLOOMBERG

Emerging-market equity fund inflows stalled last week as the specter of higher interest rates around the world and a plunge in commodity prices prompted investors to trim their holdings in markets from India to Russia.

Withdrawals may increase this week. Since surging to a record on May 8, the Morgan Stanley Capital International Emerging Markets Index suffered a 10-day losing streak, which was the longest rout in eight years. The index has fallen in 11 of the past 12 sessions, losing 14 percent in that time.

"There's been a loss for confidence, so people will be taking risk off the table," said Alan Richardson, a fund manager at Baring Asset Management in Hong Kong.

"I expect outflows will come. We just haven't seen the complete outflow effect yet," he said.

Interest in emerging-market equities, which have more than tripled in value since September 2001, has waned in the past two weeks on concern that central banks in the US, Europe, Japan and China will raise borrowing costs, slowing economic growth globally and causing demand for riskier assets to slacken.

South Korea's Kospi index has slumped 9.3 percent since closing at a record on May 11. The Russian Trading System Index has slumped 20 percent since reaching a record on May 6, while India's Sensitive Index has lost 14 percent of its market value since closing at its highest ever level on May 10.

Credit Suisse Group's Jonathan Garner, head of emerging market equity strategy, argues that the recent decline is just a hiccup and provides an opportunity for investors to buy shares at a lower price before the rally resumes. He recommended that fund managers should buy shares of firms in Brazil, Russia and Taiwan.

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