Investors have begun pulling money out of Asia, dramatically reversing a six-month trend during which inflows to the region surpassed pre-1997 levels.
According to State Street, international investors had been pouring money into the region over the past six months. The flows into the region were the largest ever recorded in its 10-year database, which tracks the movement of pension fund money and is one of the largest of its kind. State Street tracks fund flows using its Portfolio Flow Indicator, a normalized indicator that looks at investment flows in terms of basis points of market capitalization.
The pattern of cash pouring into Asia had reversed over the two weeks before Euromoney went to press, with Korea, Thailand and Taiwan seeing the most significant outflows.
The dramatic change in pattern, however, does not necessarily signal that investors’ risk appetites have changed as dramatically. “The pullout from Asia has not been matched by a pullout from equities around the world,” observes Carlin Doyle, FX strategist at State Street. “Latin America has actually been benefiting from the Asian pullout. While the perception is that Asia is peaking, the growth dynamic is Latin America looks more favourable. Inflows into Latin America are rising even though the region’s markets have not been doing well.”
Significant outflows
Emerging Europe has suffered significant outflows for the past three months as growth expectations were revised downwards.
Emerging markets generally have been hit by a degree of change in investor sentiment. According to Emerging Portfolio Fund Research (EPFR), a Cambridge, Massachusetts-based fund flows tracker that monitors $4 trillion of assets, investors have pulled about $2.5 billion from emerging market equity funds in three weeks. At the end of March investors withdrew $1.58 billion in one week, with global emerging market equity funds the worst hit, the most since May 2004.
“The current state of investor sentiment and fund flows are similar to that of last April and May when sudden concerns about inflation and the potential for more aggressive interest rate rises sent Treasury yields soaring and emerging market assets, and fund flows, plummeting,” said Brad Durham, a managing director at EPFR. “Easing oil prices and the disappointing durable goods orders and unemployment data released in the US on Thursday [March 24] will compete with inflation and interest rate worries for investor attention in the week ahead.”
