Less than two months into the year, global investors pulled more money out of emerging-market stock and bond funds than the total amount they retracted last year.
Investors withdrew US$4.5 billion from funds in the week through Wednesday, extending the total outflow this year to US$29.7 billion, according to Barclays PLC, which cited data provider EPFR Global. Last year, a total of US$29.2 billion left funds investing in emerging-market assets.
Capital outflows are showing no signs of abating even as stocks and currencies from developing nations rose this month following the biggest equity losses in January since 2009.
While investors including BlackRock Inc’s Larry Fink say emerging-market assets are cheap, concerns about slowing growth in China, trade deficits in Turkey and the US Federal Reserve’s reduction of stimulus are weighing on investor sentiment.
“The fund flows data for EM [emerging markets] remain negative, with retail-type investors leading the exit and recently joined by more visible institutional-type investor selling from equities,” London-based Barclays head of emerging-market strategy Koon Chow wrote in an e-mailed note yesterday. “The turning point for EM will probably be when investors become more positive on EM growth, particularly in Asia.”
Investors pulled US$3.1 billion out of emerging-market stock funds during the week, extending total outflows this year to US$21.7 billion, Barclays said.
Outflows from bond funds amounted to US$1.4 billion in the week and US$8 billion for the year.
The MSCI Emerging Markets Index of stocks has gained 2.3 percent this month, following a 6.6 percent decline last month, as Turkey’s interest-rate increases stemmed a currency rout and China’s exports beat economists forecast. Local-currency bonds returned 2.3 percent in US dollar terms after losing 4.6 percent last month, according to JPMorgan Chase & Co’s GBI-EM Diversified index.
BlackRock’s Fink, whose firm is the world’s largest money manager with US$4.3 trillion, said in an interview with Charlie Rose on Tuesday that developing-nation equities are attractive. The MSCI benchmark traded 9.3 times projected 12-month earnings on Feb. 4, compared with a multiple of 14.7 for the MSCI World Index of developed-country equities.
Short sellers are increasing their bets that emerging- market stocks will extend the decline, according to Markit, a London-based financial data provider.
Short interests in the companies in the MSCI benchmark increased 7 percent this year to 2.1 percent of the total free floating shares, Markit said in a note on Friday.
In short selling, investors borrow shares and sell them on expectations they will fall.
About 4.5 percent of Chinese shares are on loan, the most shorted in the MSCI index, followed by South Africa, which has 4.3 percent, according to Markit.
In the bond market, demand from insurance companies, pension funds and sovereign wealth funds remains intact even as individual investors retreat, Bank of America Corp said.
Purchases from institutional investors helped developing-country companies and governments raise US$67 billion in US dollar-bond sales this year, strategists led by Jane Brauer wrote in a note yesterday.
Foreign investors also boosted their holdings of local- currency bonds by 7 percent between July and December last year, Brauer said.