Emerging Markets 01 (May 08 - Dec 11)

[winston]

Emerging Equity Funds Have Biggest Outflow Since 2008
By Michael Patterson and Weiyi Lim

Emerging-market equity mutual funds had their biggest weekly outflows since mid-2008 as investors speculated rising interest rates will curb economic growth, according to Citigroup Inc.

The funds lost $3 billion during the week ended Jan. 26, Citigroup’s Hong Kong-based strategist Markus Rosgen wrote in a report today, citing data compiled by research firm EPFR Global. The outflows amounted to 0.4 percent of the funds’ assets, the most since May, Rosgen wrote.

Investors are paring bets on shares in the fastest-growing economies after pouring more than $90 billion into emerging- market stock funds last year, the biggest-ever annual inflows, according to EPFR data.

The last time weekly outflows reached these levels, developing-nation shares were in the midst of their worst bear market as the global financial crisis and interest-rate increases from Brazil to India curbed economic growth.

The funds lost more than $40 billion for all of 2008 as the MSCI emerging- market index declined 54 percent, according to EPFR.

This week’s fund flows show that investors are pulling money out of emerging markets to invest in slower-expanding developed nations, according to Citigroup’s Rosgen.

India’s Bombay Stock Exchange Sensitive Index has tumbled 10 percent this year while China’s Shanghai Composite Index lost 2 percent and Brazil’s Bovespa declined 1.8 percent.

http://www.bloomberg.com/news/2011-01-2 ... limbs.html

[winston]

Emerging-Market ETF Outflows Reach Record as Egypt Spurs Hedge Fund Exit
By Michael Patterson and Jason Webb

Emerging-market exchange traded funds had their biggest-ever weekly outflows as violent clashes in Egypt and record world food prices heightened concern that inflation may spur social unrest and curb consumer spending.

Investors pulled $4.6 billion from ETFs that track developing-nation stocks during the week ended Feb. 2, Bank of America Merrill Lynch wrote in a note today, citing data compiled by research firm EPFR Global. Outflows from all emerging-market equity funds totaled $7.2 billion, the most since January 2008.

Withdrawals from ETFs, which are listed on an exchange and change hands throughout the day like stocks, signal hedge funds are paring bets on the fastest-growing nations, Morgan Stanley wrote in a Feb. 1 report.

The MSCI Emerging Markets Index has dropped 1.5 percent this year as countries from Brazil to Hungary and Indonesia raised interest rates to combat inflation.

Investors poured more than $90 billion into emerging-market stock funds last year as the economies grew at a 7.1 percent pace, more than double the 3 percent rate for advanced nations, according to data compiled by Cambridge, Massachusetts-based EPFR Global and the International Monetary Fund. The MSCI emerging-market index gained 16 percent in 2010 and Indonesia’s Jakarta Composite Index jumped 46 percent.

Now central bankers are trying to slow the expansion as surging food prices boost inflation in seven of the 10 biggest developing economies. A United Nations index of 55 food commodities gained 3.4 percent in January to an all-time high, the seventh straight monthly increase.

Consumers in Brazil, Russia, India and China spend about 19 percent of their income on food, compared with 6 percent in the U.S., Euromonitor International data show.

While investors pull money from emerging markets, they’re increasing bets on stocks in the U.S. and Europe, part of a shift this year that Bank of America strategist Michael Hartnett called the “Great Rotation.”

Funds that invest in developed countries attracted $4.6 billion of inflows, beating emerging- market funds for the fifth straight week, New York-based Hartnett wrote today.


http://www.bloomberg.com/news/2011-02-0 ... -exit.html

[winston]

But be wary of "experts" commenting on something half the world away ...

How Egypt’s Civil Unrest Could Spread To Asia, And What It Means For Your Investments! By Bryan Rich

In recent weeks we’ve seen riots in Algeria, a coup in Tunisia and a massive public uprising in Egypt. The catalyst: The combination of skyrocketing food prices and high, persistent unemployment.

But while most are focusing on the specific political shortcomings within the countries and dismissing the events as isolated and contained, the lessons learned from this global economic crisis give every reason to expect contagion …

• The subprime crisis was said to be contained. But it wasn’t.
• The failing of major U.S. financial institutions was said to be contained. But it wasn’t.
• The sovereign debt crisis in Greece was said to be contained. But it wasn’t.

Now, global politicians and financial market experts are hoping the latest events will be isolated and contained. But, they likely won’t.

Here’s why …

Spreading Discontent

This dangerous combination of persistent unemployment and rapidly rising food inflation isn’t just specific to North Africa and the Middle East. Global unemployment remains at record levels. And world food prices rose to a record in January.

The expanding unrest is most vulnerable in those countries with low per capita income, where people may spend as much as 70 percent of their income on food. Moreover, the threat of civil disorder rises when those countries have significant income inequality and/or have gone through major economic stress where the outlook for a return to normalcy looks bleak.

In this environment, there are many countries that fit the bill. Take a look at how risks in other parts of the world stack up against Egypt and Tunisia.

The table below is a gauge of economic misery across the biggest countries in the world. This index was created by a former economic advisor to President Lyndon Johnson, Arthur Okun. It simply takes the sum of inflation and unemployment rates. According to his index, the higher the index value the more miserable life is in these countries.

You can see that Tunisia and Egypt, two countries that have already erupted in crisis, are among the most miserable.

Also note the position of the weakest euro-zone countries — Portugal, Ireland, Greece and Spain — all of which have been forced into stifling austerity plans by the IMF and their European neighbors.

We’ve already seen massive protests in recent months, both from those countries taking money … and from those giving money. And growing inter-European political fractures and languishing economic activity promise more social volatility ahead.

Asia at Even Greater Risk!

Perhaps the biggest potential threat within this table is a spread of public uprising to the three Asian countries that have been important drivers of global economic recovery: Indonesia, India and China.

China is caught between a rock and a hard spot in valuing the yuan.

Food prices in Indonesia and India have risen 16 percent and 17 percent, respectively, over the past year. And while China’s misery index is on the bottom of this list, it’s risen 40 percent in the past year.

Remember, China still has the world’s second largest poor population, with 135 million people living on less than one U.S. dollar a day. The largest poor population: India.

So a backlash in China or India could stop the global economic recovery dead in its tracks!

That’s why, despite all of the global pressure on China to stop manipulating global trade through its weak currency advantage, it is unwilling to make meaningful concessions. The risk of losing exports, and therefore losing jobs, is a recipe for violent protests and too big of a risk for China’s ruling Communist Party to take.

To be sure, major problems in China are major problems for the rest of the world. Yet, the pressures on China to strengthen the yuan will continue to grow, because its currency policy promises to keep the global economy imbalanced, and stuck in the current cycle of booms and busts.

If the China problem sounds like a conundrum, you’re right, it is.

Still, recent meetings of world economic and financial leaders in Davos, Switzerland were filled with optimism about the global recovery.

But for all of the reasons I’ve touched on here, IMF chief Dominique Strauss-Kahn followed those meetings with warnings this week that the growing divisions between countries and within countries pose the risks of global protectionism and war.

If in fact, we see a spread of public backlash across the world, it’s fair to expect global investors will, again, pull in their horns. And we’ll likely see the risk aversion dynamic return to global markets in a hurry.

That means weaker global stock markets, falling commodities, a flight from emerging market currencies and a rise in the dollar.

http://www.dailymarkets.com/forex/2011/ ... vestments/

[winston]

FABER: EXPECT EQUITY CORRECTION, COMMODITY RALLY, NEW CRISIS

In a recent Bloomberg interview Marc Faber says equity markets about set to correct.

He believes global inflation is causing instability and should lead to higher oil prices.

Faber believes emerging markets could decline as much as 30% from current levels and that developed markets are likely to outperform.

Ultimately, Faber is still very bearish about the long-term as he expects the Fed’s incessant intervention in markets to cause another crisis.

http://pragcap.com/faber-expect-equity- ... new-crisis

[winston]

Now that the parrots on CNBC, are talking about the outflows from EM to DM, what will be your strategy ?

So are you going to be throwing out the baby with the bath now ?

As for me, it will be going back to first principles:
1) Why did I buy in the first place ? Is the reason still valid ?
2) What's my time frame ? Scalp, Swing, Position or Long Term ?
3) For the Short-Term trades, are my Stops in place ?
4) For the Long Term trades, would I be willing to average down later, if they do drop ?
5) Do I have enough Cash to buy later ?
6) Do I need to buy some Short ETFs or Put Warrants for protection ?
7) Should I buy more USD ?

And finally, did you remember the time when the parrots were telling you that QE2 will be sending the EM to the moon because of the strong growth in the EM ? If the parrots were wrong the last time, why would they be right this time ?

[Muhajir]

Now that the parrots on CNBC, are talking about the outflows from EM to DM, what will be your strategy ?

I have my doubts on this on too. Where do you think all this money will go into Winston? Is it to Gold like when investors seek safety above everything?

Now that the parrots on CNBC, are talking about the outflows from EM to DM, what will be your strategy ?

Well noted. These shills on CNBC behave like this normally. I don't agree with them that all this withdrawing money will go into DM's; it does not make sense.

[winston]

Hi Muhajir,

I'm also trying to follow the money to see where it will end up in.

At this point, some of them seems to be flowing into the DM.

Take care,
Winston

==============================

From UBS:-

Protect your profits

• We stress a defensive stance in our emerging market country allocation. We advise investors to avoid expensive markets such as Indonesia.

• We believe ongoing rotation into countries with high exposure to the US economy still has upside potential. Therefore, we add Mexico and Korea to our list of preferred countries.

• Low stock market volatility indicates that downside protection is relatively cheap. Investors who want to protect gains of recent quarters should consider protective strategies in addition to country rotation.

[winston]

TOL:-

With Mubarak stepping down now, does that mean the money would be flowing back to the EM on Monday ?

I think the shorts would not be able to sleep that well this week-end. The rebound in HK from 3pm yesterday was fast and furious.

Lesson Learnt:
1) Dont have a short position over the week-end if your reason is not that valid

[iam802]

it means..the news focus will soon be shifted back to EU.

just a gut feel...we will move up a little more..and then the market start to worry a lot more again in the coming 2 months.

[winston]

Developed markets best emerging in fund flows - EPFR By Daniel Bases

NEW YORK (Reuters) - Investors hunting for higher returns on their cash put a record net $1.4 billion extra into high yield bond funds for the week ended Feb. 9, while the rotation into developed market stocks continued, data from EPFR Global showed on Friday.

All equity funds tracked by the Cambridge, Massachusetts-based firm showed net inflows of $2.8 billion while all bond funds combined had net outflows of $186 million.

Money market funds, typically used as a place to park cash for safe-keeping, took in a seven-week high $14.2 billion.

In the equity space, funds focused on the United States, Europe, Global and Japan took in a net $6 billion or so.

However there was a net $3 billion pulled out of emerging market equities as well as $351 million from Pacific equity funds.

Emerging market local currency debt funds had net outflows of $67 million while the hard-currency variety had outflows of $422 million in the latest week.

In sector funds, both energy and commodity funds took in net new cash of $1.01 billion and $1.14 billion, respectively.

DEVELOPED

Drilling down into the data, EPFR said U.S. equity funds had modest inflows of $503 million, a ninth week out of the last ten, with mid-cap growth faring better than those with a value orientation.

"Actively managed funds attracted the most money in a single week since EPFR Global started tracking this fund group in the mid-1990's, but investors pulled over $2.5 billion out of passively managed funds," the firm said.

This is consistent with data reported on Thursday from Thomson Reuters' Lipper service, which showed the SPDR S&P 500 ETF had net redemptions totalling $3.23 billion, the biggest outflow among ETFs this past week.

European equities had inflows of $2 billion. Among the main markets, the UK had net inflows of $303 million, while France had outflows of $246 million.

Japan had net inflows of $676 million.

"In percentage of assets under management terms, Japan Equity Funds continue to lead the way, with year-to-date inflows equal to over 6 percent of assets under management (AUM) going into 2011," EPFR said.

In the fixed income space, municipal bond funds had another week of outflows, totaling $1.03 billion. U.S. bond funds overall had outflows of $611 million, while Europe had their worst week of net outflows since June 2008, with redemptions of $1.43 billion.


EMERGING

Investors overall shunned emerging market equities and debt.

Latin American equity funds had net outflows of $471 million, "which extended their longest outflow streak since a 13 week run ended in early July."

Chinese equity funds had outflows of $309 million, suffering redemptions for the seventh time in 10 weeks. Net outflows from Brazil reached $164 million. India equity fund outflows of $120 million, made it four weeks in a row of net redemptions.

Russia , however, continues to attract in cash, due in large measure to its exposure to energy and commodity prices. Equity funds in Russia took in a net $267 million.

http://sg.finance.yahoo.com/news/Develo ... 5.html?x=0