Bloomberg News

Emerging-Market Fund Outflows This Year Surpass 2013 Total

February 14, 2014

Shenzhen, China

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 Federal Reserve’s reduction of stimulus are weighing on investor sentiment. Photographer: Brent Lewin/Bloomberg

Less than two months into 2014, global investors pulled more money out of emerging-market stock and bond funds than the total amount they retracted last year.

Investors withdrew $4.5 billion from funds in the week through Feb. 12, extending the total outflow this year to $29.7 billion, according to Barclays Plc, which cited data provider EPFR Global. In 2013, a total of $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. (BLK:US)’s Larry Fink say emerging-market assets are cheap, concerns about slowing growth in China, trade deficits in Turkey and the Federal Reserve’s reduction of stimulus are weighing on investor sentiment.

“The fund flows data for EM remain negative, with retail-type investors leading the exit and recently joined by more visible institutional-type investor selling from equities,” Koon Chow, the head of emerging-market strategy at Barclays in London, wrote in an e-mailed note today. “The turning point for EM will probably be when investors become more positive on EM growth, particularly in Asia.”

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Investors pulled $3.1 billion out of emerging-market stock funds during the week, extending total outflows this year to $21.7 billion, Barclays said. Outflows from bond funds amounted to $1.4 billion in the week and $8 billion for the year.

Short Interest

The MSCI Emerging Markets Index of stocks has gained 2.3 percent this month, following a 6.6 percent decline in January 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 dollar terms after losing 4.6 percent in January, according to JPMorgan Chase & Co.’s GBI-EM Diversified index.

BlackRock’s Fink, whose firm is the world’s largest money manager with $4.3 trillion, said in an interview with Charlie Rose on Feb. 11 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.

Bond Demand

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 yesterday. In short selling, investors borrow shares and sell them on expectations they will fall.

About 4.5 percent of Chinese shares (MCHI:US) 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, according to Bank of America Corp.

Purchases from institutional investors helped developing-country companies and governments raise $67 billion in dollar-bond sales this year, strategists led by Jane Brauer wrote in a note today.

Foreign investors also boosted their holdings of local-currency bonds by 7 percent between July and December, Brauer said.

To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net

To contact the editor responsible for this story: Tal Barak Harif at tbarak@bloomberg.net


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Companies Mentioned

  • BLK
    (BlackRock Inc)
    • $360.15 USD
    • 1.31
    • 0.36%
  • MCHI
    (iShares MSCI China ETF)
    • $48.91 USD
    • 0.20
    • 0.41%
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