Sunday, February 06, 2011

Investors Pull $7 Billion From Emerging Funds

Investors pull $7bn from emerging funds

By Barney Jopson and Nicole Bullock in New York
Financial Times
February 4 2011 19:00

Investors have pulled more than $7bn from emerging market equity funds in the past week, the biggest withdrawal in more than three years after turmoil in the Middle East and rising food inflation raised fears of economic instability.

Violence on the streets of Egypt and a jump in oil prices to more than $100 a barrel set off a wave of anxiety across developing markets.

But the fund outflows also reflected deeper unease about economic overheating in China, India, Brazil and other big emerging economies.

Emerging markets attracted record investor inflows of $95bn last year as they became a defining investment theme in the wake of the financial crisis. The latest figures have raised concern that the bull run may be about to end as investors look for value in beaten-down markets in the west.

“Since the fourth quarter, the perception of where the value lies in the equity markets has shifted pretty decisively toward the developed markets,” said Cameron Brandt, global markets analyst at EPFR, which tracks the fund movements. “If you were thinking of making the switch, Egypt gave you a nudge.”

Emerging market share prices have fallen nearly 3 per this year and in the worst performing big market, India, equities are down 11 per cent. Before the latest outflows, emerging market equity funds contained nearly $720bn.

Many investors ploughed their money straight back into the US, Europe and Japan as developed market equity funds took in $6.6bn, a fifth consecutive week of inflows.

The data point to a new year switch in investment strategies by some of the world’s biggest fund managers, but may not mean emerging equities are poised for a major retracement.

Robert Buckland, head of global equity strategy at Citi, said: “Investors are clearly rotating out of emerging into developed market equities.”

Oliver Bell, who helps manage $10bn of emerging market equities at Pictet Asset Management, said that, in spite of the unrest in Egypt, investors were less concerned now than they were a week ago.

“The big change is that last Friday no one could see the solution in Egypt. Now we know the solution: it’s for [President Hosni] Mubarak to leave and for there to be a transition to a new government,” he said.

Others pointed to rising inflation in emerging markets, which is being driven by the higher price of food and other commodities.

Indonesia on Friday became the latest country this year to raise interest rates in an effort to control inflation, joining India, Brazil and South Korea.

Tristan Hanson, head of asset allocation at Ashburton, a fund manager with about a third of its $2bn assets in emerging markets, said: “The good news is that inflation is already a headline issue, so it’s probably already in the price. But I don’t see these issues disappearing anytime soon.”

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