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


21 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


3 days 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 n ...
Source: Business Times Singapore   Full article at: Business Times Singapore


4 days 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 the double tragedies of MH370 and MH17" hits ...
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

Nigeria to get Japanese drug for Ebola treatment
Abuja, Sep 2 (IANS) Nigeria will soon get a Japanese drug to treat Ebola, the country's Health Minister Onyebuchi Chukwu said Monday.
Japan to aid connectivity upgrade in northeast India
Tokyo, Sep 1 (IANS) India and Japan Monday decided to strengthen cooperation for improving connectivity and socio-economic development in northeastern states of India.
Three Ebola cases recorded in Nigeria oil hub
Abuja, Sep 1 (IANS) At least three cases of Ebola virus disease (EVD) have been recorded in Nigeria's oil hub of Port Harcourt, where a fatality was confirmed last week, the country's Minister of Health Onyebuchi Chukwu said here Monday.
India, Japan to elevate strategic partnership
Tokyo, Sep 1 (IANS) Prime Minister Narendra Modi Monday said relations with Japan were of the "highest priority" for his government and announced a slew of initiatives, including turning the strategic partnership into a "special" partnership and a fast-track channel for Japanese investors.

Latest from the Network

Modi focuses on women's empowerment, education
Tokyo, Sep 2 (IANS) Prime Minister Narendra Modi Tuesday stressed on the need for women's empowerment in the present-day world as he began the fourth day of his visit to Japan. Modi, who was addressing students of the...
Read more on Politics Balla
George Clooney's back pain continues
Los Angeles, Sep 2 (IANS) Almost 10 years after filming the Oscar-nominated movie "Syriana", actor George Clooney is still feeling the effects of his on-set back injury. The actor traveled to Duke University earlier...
Read more on Celebrity Balla
Carrie Underwood is pregnant
Carrie Underwood is pregnant. The former 'American Idol' winner, 31, and husband Mike Fisher announced on Twitter tonight (09.01.14) that they're expecting their first child together. The blonde beauty posted a...
Read more on Celebrity Balla
50 Cent buys son miniature car
50 Cent bought his son a miniature car for his birthday. The 39-year-old rapper - whose real name is Curtis James Jackson - surprised Sire with a little Mercedes ML450 SUV, a smaller representation of his own vehicle,...
Read more on Celebrity Balla
Kirsten Dunst criticises Apple for leaked photos
Kirsten Dunst has hit out at Apple after naked photographs of her were allegedly leaked online. The 32-year-old actress took to her Twitter account last night (09.01.14) to criticize the American multinational...
Read more on Celebrity Balla
Daisy Lowe feels 'rubbish' without exercise
Daisy Lowe feels ''rubbish'' if she doesn't exercise at least three times a week. The 25-year-old model admits she maintains her enviable figure by working out on a regular basis, but she still enjoys tucking in to...
Read more on Celebrity Balla
Paul Smith collaborates with Led Zeppelin
London, Sep 2 (IANS) British fashion designer Paul Smith has collaborated with legendary rock band Led Zeppelin for his latest scarf collection. The London-based designer has teamed-up with the band to create the...
Read more on Celebrity Balla
US continues air strikes against IS in Iraq
Washington, Sep 2 (IANS) US forces continued their attack on Islamic State (IS) militants in northern Iraq with three more air strikes conducted Monday, the army said. The strikes destroyed three IS trucks and...
Read more on Politics Balla
13 killed in Baghdad bomb blasts
Baghdad, Sep 2 (IANS) As many as 13 people have been killed in two explosions in Iraq's capital Baghdad Monday, a police source said. Thirteen people were killed and 45 others injured when two car bombs exploded in...
Read more on Politics Balla