Bloomberg News

Emerging Stock Funds Post 2nd Week of Inflows, Citi Says

October 28, 2011

(Updates with Philippine data in 2nd, 9th paragraphs.)

Oct. 28 (Bloomberg) -- Emerging-market equity funds reported a second week of inflows, as investors became more optimistic about a solution to the European debt crisis, according to Citigroup Inc.

Funds investing in developing-nation stocks took in $1 billion in the week ended Oct. 26, Citigroup analyst Markus Rosgen wrote in a report today, citing data compiled by EPFR Global. Latin America and Central & Eastern Europe, Middle East and Africa saw selling, while Asia excluding Japan was the “relative winner, with negligible outflows,” the report said. Overseas investors bought the most Philippine stocks today since Aug. 17, stock exchange data show.

The MSCI Emerging Markets Index rose 1.3 percent to 1,007.15 at 5:22 p.m. Singapore time, extending its surge since Oct. 4 to 21 percent as European leaders this week agreed to expand a bailout fund and the Chinese government signaled an end to a two-year policy-tightening campaign.

“We are now calling for emerging markets to outperform the developed markets,” Adrian Mowat, JPMorgan Chase & Co.’s Hong Kong-based chief Asian and emerging-market strategist, said in a Bloomberg Television interview today. “Everything in emerging markets got considerably cheaper in the last year.”

MSCI’s developing-nations gauge has dropped 13 percent this year, driving valuations down to 10.6 times estimated profit. That’s less than the four-year average multiple of 11.5 times, according to data compiled by Bloomberg.

Easing European Crisis

Bond funds dedicated to developing nations took in $135 million in the week ended Oct. 26, according to a report from Barclays Capital, citing data from EPFR Global. Flows returned to local-currency bonds, receiving $89 million in the latest week after redemptions of $21 million in the prior week.

European leaders said yesterday they had persuaded bondholders to take 50 percent losses on Greek debt and resolved to increase the size of the rescue fund, responding to global pressure to step up the fight against the financial crisis.

“The meeting in Europe boosts investors’ expectations” of a resolution to the debt crisis, Yue Hin Pong, a Citigroup analyst, said today in a phone interview.

Overseas investors bought a net $23.6 million of Philippine equities today, making them net buyers for nine consecutive days, according to data from the nation’s stock exchange.

Global Cooperation

The deal to boost Europe’s bailout fund and write down Greek debt was hailed by U.S. President Barack Obama as an “important first step” in resolving the crisis. French President Nicolas Sarkozy said China will “cooperate closely” to ensure the Group of 20 will contribute to the enlarged fund, while a person familiar said Japan plans to support the increase.

Chinese officials will make adjustments at a “suitable time and by an appropriate degree” and will maintain “reasonable” growth in money supply, Premier Wen said during a visit to Tianjin, according to a statement published on Oct. 25 on the government’s website. The government will continue to make tackling inflation a top priority, Wen said.

China’s policy “fine-tuning” has supported a rebound in stocks and may spark a year-end rally, Shen Minggao, the Hong Kong-based head of China research at Citigroup, said in a separate report today. The Shanghai Composite Index climbed 1.6 percent today, taking its weekly advance to 6.7 percent.

--With assistance from Lilian Karunungan in Singapore and Ian Sayson in Manila. Editors: Allen Wan, Darren Boey

To contact the reporters on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net; Shiyin Chen in Singapore at schen37@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net


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