Emerging market funds lose sheen

Major emerging market fund groups recorded outflows during the fourth week of August with EMEA (Europe, Middle-East, Africa) equity funds hit the hardest in percentage terms, according to Emerging Markets Portfolio Funds Research.

Investors pulled money out of the diversified Global Emerging Markets (GEM) Equity Funds for a fifth-straight week and extended Latin America Equity Funds’ losing run to 12 weeks and $4.1 bn. Since the second week of June, EPFR Global-tracked Emerging Market Funds have surrendered a net $23.1 bn, the note said.

Appetite for exposure to emerging markets has been eroded by a sharp correction in commodity prices during the current quarter, a string of downward revisions to economic growth forecasts and painfully high inflation rates in several key markets including Russia, India, South Africa and Argentina. Investors still have appetite for direct exposure to China, although the $175 mn they committed to China equity funds was more than offset by redemptions from Asia (excluding Japan) equity funds, Greater China equity funds, India equity funds and Taiwan equity funds.

The abrupt loss of enthusiasm for Russia, fueled by state pressure on firms in “strategic sectors” and the recent incursion into Georgia, has played a role with outflows from Russia equity funds since late June exceeding $800 million, the EPFR note says. And since late June investors have pulled nearly $4 bn out of the Emerging Europe equity funds, which currently maintain a 42% weighting to Russian equities.

- Economic Times