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Investors pull out of Asian markets

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.

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