By Chris Weafer, Chief Strategist at UralSib Capital
Waiting for clarity. Fund investors appear to have taken a sanguine view of global market volatility over the past week. They have remained largely on the sidelines while waiting for a clearer picture to emerge. According to the data supplied by EPFR Global, in the week ended last Wednesday, investors in emerging market funds increased exposure by a net $4m. That “rounding error” is a significant improvement on the net redemptions of $2.1bn during the previous week, i.e. even though markets were a lot weaker in the latter period.
A lot at stake. That is both a positive and a negative. The positive coming from the fact that there has been no panic reaction to global market weakness. The negative is from the fact that conviction is finely balanced and, if it turns negative, the Tsunami of redemptions would be catastrophic. That is because investors placed over $75bn of new money into funds in this asset class in 2009 and have added an additional $13 bln so far in 2010.
Stable Russia. Russia funds performed well last week. Even though they reported net redemptions of $9m for the week, that was because of an ETF redemption of $78 mln. Other, non-ETF funds, took in $69m for the period. There were also new money investments into China ($43 mln when “greater China” funds are added) and $23m into India funds. Again, Brazil was the odd one out amongst the BRICs, reporting redemptions of $123m. Turkey funds lost $17m.
Low activity everywhere. The GEM Balanced fund category reported outflows of $6 mln last week, down from new money of $211m the previous week and almost $4 bln through April. BRIC funds suffered redemptions of $71m (-$133 mln the previous week) and Emerging Europe funds reported outflows of $70m (-$104m the week prior).
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