Developed economies’ debt woes, mixed earnings season prompt change.
Emerging markets have re-emerged on the radars of all global big-ticket investors who are looking at investment avenues outside the developed economies. Factors like high growth rate of emerging markets have tilted the balance in their favour as developed economies fight debt problems and a mixed start to the new earnings season.
According to EPFR Global, the second week of April saw Emerging Markets Equity Funds post bigger inflows than their developed market counterparts for the first time in the current calendar year. Emerging Markets Equity Funds posted inflows for the third straight week, a run that has seen them shave off $10.3 billion year-to-date (YTD) outflows that stood at over $26 billion going into the final week of March. Further, investors showed a preference for diversified exposure with Global Emerging Markets (GEM) Equity Funds accounting for over 80 per cent of the week’s total inflows.
According to Bloomberg, India saw net inflows of $877.60 million in 2011, the second-highest among leading Asian markets. Taiwan ($289.90 million), Thailand ($561.80 million) and Philippines ($270.60 million) have all attracted inflows less than that of India. Only Japan with a net inflow of $38.116 billion has fared better. South Korea, meanwhile, saw outflows of $156.30 million since the beginning of 2011.
Flows into EPFR Global-tracked Developed Markets Funds slowed sharply during the week ended April 13 as investors digested the Eurozone’s ongoing debt crisis, the European Central Bank’s shift to a tightening bias, the impact of high oil prices on growth and consumption in the US and Europe, a mixed start to the first quarter of 2011 earnings season and Japan’s struggle to contain the radiation leaking from the stricken Fukushima nuclear power plant.
Of the five major developed markets fund groups, Europe Equity Funds posted the biggest inflow for the week. Behind the overall number, however, was a big shift away from regional funds to those concentrating on Germany with strong institutional commitments helping Germany Equity Funds post their biggest weekly inflow since the second week of May, 2010.
Meanwhile, with optimism about the US and its appetite for Asian exports taking a knock from the latest consumer spending data and China raising interest rates again, flows into Asia ex-Japan Equity Funds were less than a tenth of the previous week’s total. But Korea Equity Funds had another solid week as investors bet that Korean exporters will benefit from Japan’s troubles by grabbing additional market share, says EPFR Global.
Japan Equity Funds recorded outflows for the third consecutive week as authorities upgraded the severity of the crisis at the Fukushima plant and downgraded the outlook for the economy, foreign brokerages turned sour on key sectors and the post-tsunami cooperation among the country’s political parties began to unravel. Retail investors have now pulled money out of this fund group for sixth straight week.
