Bloomberg News

Emerging Stock Funds Post $2.7 Billion Outflow, Citi Says

November 27, 2011

(Updates with bond fund flows in seventh paragraph.)

Nov. 25 (Bloomberg) -- Emerging-market equity funds reported net outflows in the week ended Nov. 23, amid concerns Europe’s debt crisis is worsening, Citigroup Inc. said.

Funds investing in developing-nation stocks withdrew $2.7 billion in the period, Citigroup analysts led by Markus Rosgen wrote in a report today, citing data compiled by EPFR Global. South Korea had the most outflows in the Asia-excluding-Japan region during the week, according to the report.

Concerns over European debt mounted this week after bids for German bonds in a sale fell 35 percent short of the amount on offer. Euro bonds are “not needed and not appropriate,” German Chancellor Merkel said at a press conference with Italian Prime Minister Mario Monti and French President Nicolas Sarkozy in Strasbourg, France yesterday.

“The numerous things going on in Europe, with the German bond auction the more recent one, have once again brought people back to worry about the systemic crisis,” Kelly Kwok, one of the Citigroup analysts cited in today’s report on fund flows, wrote in an e-mail.

More than $4 trillion has been erased from the value of equities worldwide this month as rising borrowing costs in the euro-area stoked concern the debt crisis will derail growth.

The MSCI Emerging Markets Index lost 1 percent to 879.82 at 11:46 a.m. Singapore time, extending a weekly loss to 5.8 percent. Companies in the index trade at 9.7 times estimated earnings, less than the four-year average multiple of 12.2, according to data compiled by Bloomberg.

Bond Flows

Outflows from developing-nation bond funds were $205 million in the same week, according to Barclays Capital, citing data from EPFR Global. Local-currency bonds had the most redemptions at $220 million, after outflows of $164 million in the prior week.

Investors pulled $26 billion from emerging-market mutual funds in the first nine months of 2011, and stocks sank about twice as much as advanced nations after Indonesia, India, Poland and Brazil raised interest rates.

Now borrowing costs are coming down as policy makers seek to spur expansion, as export growth and inflation slow. The MSCI Emerging-Market index may rise 30 percent in a year as record earnings outweigh Europe’s debt crisis, more than 17,000 forecasts compiled by Bloomberg show.

“Many emerging markets have continued to grow at a rapid pace and we don’t expect growth to slow down too much over the next decade,” Mark Mobius, who oversees $40 billion as Hong Kong-based executive chairman of Franklin Templeton Investments’s Emerging Markets Group, wrote in comments posted on his website on Nov. 22. The global economic situation “continues to look very good” in the mid-to-long term, he wrote.

-- With assistance from Lilian Karunungan in Singapore. Editors: Matthew Oakley, Darren Boey

To contact the reporter on this story: Weiyi Lim in Singapore at

To contact the editor responsible for this story: Darren Boey at

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