360° Coverage : Emerging Market Outflow Double 2013 Levels

2 Updates
Emerging Market Outflow Double 2013 Levels
Photo Credit: Forbes Business

Emerging Market Outflow Double 2013 Levels

Apr 4 2014, 1:52pm CDT | by

Investors have picked up the pace of buying in emerging market securities in the week ending April 2, but equity outflows this year are more than double where they were in 2013.  Since Fed talk of...

Filed under: news

 
 
 

24 weeks ago

Emerging Market Outflow Double 2013 Levels

Apr 4 2014, 1:52pm CDT | by

Investors have picked up the pace of buying in emerging market securities in the week ending April 2, but equity outflows this year are more than double where they were in 2013.  Since Fed talk of tapering last May, coupled with fears of a China slow down — again — investors have been wary about buying corporate stocks outside of the core economies.

The good news is that dedicated emerging equity and bond funds managed to register their first week of inflows since late last year, according to EPFR Global, a fund tracking firm in Cambridge, Mass.  The equity inflows were particularly noteworthy because they were the highest they’ve been since October.  The price action and the mood may have turned for the better, but given the long period of outflows and emerging market economic growth leaving little to be desired, Barclays Capital analyst Koon Chow in London said investors may need “a couple more weeks of positive flow numbers” to confirm a trend.

For now, the MSCI Emerging Markets index is close to erasing all of the losses incurred since the tapering news hit full swing last May. From May 31, 2013 to April 4,  the index is down just 0.5%.

Emerging market equity funds got a fresh $3.07 billion in the week ending April 2, EPFR Global said. Asia continues to be a sore spot and is still registering outflows. In one week, Asia equity funds tracked by EPFR lost $730 million.

Emerging market bonds faired better, with fresh inflows of $1.06 billion into dedicated bond funds, most of it into hard currency bonds that don’t have the currency risk.

So far this year, over $35 billion has flown out of emerging market equities, up from $14.05 billion at this time last year. Asia is in the worst position, with outflows this year of $12.97 billion versus just $400 million last year.  In the bond market, $11.9 billion has been pulled out of emerging debt funds. But that’s better than the $14.04 billion at the same time a year ago.

“At some point investors will get over their fear of emerging market debt,” said Wes Sparks, a portfolio manager at Schroders, a $435 billion asset management firm based in London.

The combination of still-helpful technicals, pockets of high local yield, cheap valuations versus developed markets in emerging market credit and new evidence of current account improvements, primarily in India, favors more bullish trades, BarCap emerging markets fixed income analysts said in a note to clients today.  Their favorite currencies are the Indian rupee, Brazilian real and Indonesian rupiah.  All three have strengthened by more than 2.5% against the dollar year-to-date, with the rupiah up by more than 6%.  Barclays says elections in Indonesia and India, in particular, are not a major risk to bond markets.

“Emerging market bonds, as well as currencies, continued to do well, helped by investors taking a ‘balance of risks’ view on emerging to turn more positive,” Barclays’ team led by Koon Chow wrote in their emerging markets weekly report today.

Emerging market bond investors will be keen on watching U.S. Treasury rates, and will pay close attention to further thoughts on tapering by Fed Chairwoman Janet Yellen.

U.S. Treasury market stability is a key assumption for further gains in emerging markets.  Barclays’ view on Treasurys is another rise in the Treausury yield will come in the second half of this year. At that point, it will be difficult for emerging market fixed income and currencies to ignore it because it will have negative effects through a number of channels — including funding costs for businesses.

For now, “we are still in an environment where emerging market sensitivity to Treasury yields will be low because the levels themselves of Treasury yields are not at range extremes,” said Chow, noting that further increases in Treasury yields would make investors switch back to the dollar rather than risk it elsewhere, even if yields are higher in places like Brazil.

The debt markets are the preferred way fund managers add emerging market risk to a portfolio.  Most of the bonds are only available to institutional investors, carrying hefty initial investments upwards of a million dollars.

For institutions, Barclays likes the long end of the curve and recommends Brazil 2025 local currency debt, Mexico’s and Colombia’s 2044 bonds.  In Asia, Philippine 2021s and Indonesian 2043s are buys.

Retail investors can also get a taste of higher yield, investment grade debt.

Anyone with an E-Trade account and $1,000 can buy local currency emerging market debt. For instance, Brazil 2040 government bonds are available on the E-Trade platform. The risk with Brazil’s 2040s is that the bond is callable in 2015 at par value. It currently trades at around a 14% premium, meaning yield to call — should the Brazilian government pay off that bond issue sooner rather than during its maturity date on Aug. 17, 2040 — investors would yield just 2.66%, which is worse than a 10 year Treasury bond that yields 2.8%./>/>

Investors have been shunning this bond market for that reason.

For instance, when Colombia issued a small BBB rated, 20 year billion dollar bond on Jan. 21, 2004, the government agreed to pay 8.12% interest in the local currency, the peso. But demand for yield was so great, that investors quickly put a premium on that bond, which currently trades at nearly 31% over par. That means investors are paying $1,310 for a $1,000 bond, which has pushed yield to maturity for Colombia’s 2024s down to 4.32%.

See: Janet Yellen’s ‘Most Dovish Speech Ever’ –WSJ

Best Emerging Market Bond Mutual Funds – U.S. News & World Report

Bill Gross’s Love Affair With Brazil Bonds Ends – Invest News

 
Update
2

3 weeks ago

Khazanah throws MAS RM6b lifeline

Aug 29 2014 5:01pm CDT | Source: Business Times Singapore

August 30, 2014 1:15 AMKHAZANAH Nasional will inject RM6 billion (SS$2.4 billion) over three years to resuscitate loss-making Malaysia Airlines (MAS) under a recovery plan that includes even an Act of Parliament. Other key moves are migrating its operations, assets and liabilities to a new company (NewCo) and slashing the workforce of 20,000 by 3 ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 
Update
1

3 weeks ago

MAS posts loss of RM307m for Q2

Aug 28 2014 5:00pm CDT | Source: Business Times Singapore

August 29, 2014 1:13 AMMALAYSIA Airlines (MAS) registered a loss of RM307 million (S$122 million) for the second quarter to end-June, but warned of worse to come in the second half when the "full financial impact of ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

EU, Russia and Ukraine to hold meeting on gas in Berlin
Brussels, Sep 23 (IANS/EFE) The European Union will participate in a trilateral ministerial meeting with Russia and Ukraine Friday in Berlin to address the issue of energy security in the context of the ongoing conflict between Moscow and Kiev.
 
 
UN mission team to combat Ebola arrives in Africa
United Nations, Sep 23 (IANS) An advance team of the United Nations Mission for Ebola Emergency Response (UNMEER) has arrived in Ghana's capital Accra to set up the operation's headquarters, a UN spokesman said Monday.
 
 
Spanish Ebola patient in 'serious' condition
Madrid, Sep 23 (IANS) An Ebola affected Spanish missionary who was flown back from Sierra Leone was described as "serious" by the health authorities in Spain.
 
 
Alibaba raises $25 bn in history's biggest IPO
New York, Sep 22 (IANS/EFE) Chinese e-commerce giant Alibaba collected $25 billion in the largest initial public offering ever after underwriters exercised an option to purchase additional shares, the company said Monday.
 
 
 

Latest from the Network

Atlanta Braves Fire GM Frank Wren
The Atlanta Braves have fired general manager Frank Wren.MLB.com's Mark Bowman -- who says Atlanta tapped John Hart as its interim general manager -- wrote about Wren's dismissal on Sept. 22:"Nearing the end of their...
Read more on Sport Balla
 
UN chief welcomes release of Turkish hostages
United Nations, Sep 23 (IANS) UN Secretary-General Ban Ki-moon welcomed the recent release of Turkish hostages held by the Islamic State (IS) Sunni militant group in Iraq. Ban is relieved that the Turkish men, women...
Read more on Politics Balla
 
IS-linked group claims French tourist's abduction in Algeria
Algiers, Sep 23 (IANS) An Algerian armed group linked to the Islamic State (IS) Sunni extremist militants Monday claimed responsibility for the abduction of a French tourist in Algeria, according to a video posted on...
Read more on Politics Balla
 
Kris Jenner files for divorce from Bruce
Kris Jenner has filed for divorce from Bruce Jenner. The showbiz matriarch - who separated from Bruce, 64, 11 months ago - has now officially started proceedings to end their 23 year marriage according to documents...
Read more on Celebrity Balla
 
Naomi Watts wishes she had more kids
Naomi Watts wishes she had more kids. The 'Diana' star - who has Sasha, 7, and Kai, 5 with her actor husband Liev Schreiber - has confessed she regrets not having her children earlier in life. She told More magazine...
Read more on Celebrity Balla
 
Barbara Walters' live appearance axed from The View
Barbara Walters' final live appearance was axed from 'The View'. The US-born broadcast journalist - who created and co-hosted the show from 1997 to 2014 - had her live segment on the season 18 premiere of the ABC series...
Read more on Celebrity Balla
 
Iggy Azalea's 'surreal' duet with Jennifer Lopez
Iggy Azalea's collaboration with Jennifer Lopez was ''surreal''. The 'Fancy' hitmaker - who released the video for the pair's new single 'Booty' last week - confessed she found working with the 45-year-old singer hard...
Read more on Celebrity Balla
 
Israel arrests four Gaza fishermen, says official
Gaza, Sep 23 (IANS) The Israeli naval forces late Monday has arrested four Palestinian fishermen in the central Gaza Strip while they were on their fishing boat, an official said. Israeli naval gunboats surrounded and...
Read more on Politics Balla
 
EU, Russia and Ukraine to hold meeting on gas in Berlin
Brussels, Sep 23 (IANS/EFE) The European Union will participate in a trilateral ministerial meeting with Russia and Ukraine Friday in Berlin to address the issue of energy security in the context of the ongoing...
Read more on Politics Balla
 
Elizabeth Hurley has crush on Aaron Paul's TV avatar
Los Angeles, Sep 23 (IANS) Actress Elizabeth Hurley says she has a crush on actor Aaron Paul's character Jesse Pinkman from TV series "Breaking Bad". The 49-year-old star took to Twitter to share her feelings,...
Read more on Celebrity Balla