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Developing-nation stock funds post first outflow in 12 weeks

(China Daily/Agencies)
Updated: 2010-01-30 08:11

Emerging market equity funds posted the first net outflows in 12 weeks on concern that China will take further steps to curb inflation and the global economic recovery will slow, according to EPFR Global.

Developing-nation equity funds lost $608.5 million in the week ended Jan 27, EPFR Managing Director Brad Durham said. Those buying Asian stocks outside Japan had the only inflows, with China posting its first gain since mid-December. BRIC funds investing in Brazil, Russia, India and China had net sales for the first time since early September.

The MSCI Emerging Markets Index has dropped 3.7 percent this week, set for first three-week losing streak since March. JPMorgan Chase & Co said on Jan 26 it was turning "less bullish" on developing-nation equities in the first half of 2010 on concern central banks will tighten monetary policy.

"This is a short-term correction as a result of the normalization of monetary policy in China," Khiem Do, who helps oversee about $11 billion as head of the multi-asset group at Baring Asset Management (Asia) Ltd in Hong Kong, said in a Bloomberg Television interview. "We're still quite positive on the outlook for equities over the next 12 to 18 months."

Investors pulled $716.2 million from global emerging market stock funds, the most in 23 weeks. Latin America's shares had redemptions of $222 million, the fastest pace in 29 weeks, while $41.5 million was withdrawn from Emerging Europe, Middle East and Africa equities, Durham said. Funds investing in Asian stocks outside of Japan received about $371 million, he said.

China, India

The MSCI gauge of 22 developing nations fell 1.3 percent to 928.14 as of 2:48 pm in Singapore. It has dropped 9.7 percent from its Jan 11 high after having doubled since October 2008.

The People's Bank of China this month asked lenders to set aside more money as reserves following a record 9.59 trillion yuan ($1.4 trillion) of credit expansion last year. The Reserve Bank of India on Friday told lenders to set aside more deposits as reserves than economists predicted after raising its growth and inflation forecasts.

"Investors are always looking for excuses to take profits, especially given the strong performance in the second half of last year, so this is just a correction within a bull-market," Cambridge, Massachusetts-based Durham said in a telephone interview. "China was bound to start tightening so it's actually quite healthy."

China stock funds took in $288 million after losing $348 million the previous week, the most in 18 weeks. Indexes tracking Chinese shares in Hong Kong and Shanghai are the worst performers in Asia this year. The Hang Seng China Enterprises Index jumped 62 percent last year, while the Shanghai Composite Index surged 80 percent.