Wall Street

Emerging market fund outflows surpass whole of 2013

Outflows from emerging market equity funds since the start of this year now exceed those for all of 2013 after investors continued to flee emerging stock and bond funds during the past week, banks said on Friday, citing EPFR Global data.

The Boston-based fund tracker, which releases data late on Thursday to clients, said $6.37 billion had fled emerging equity funds in the week to Feb. 5, while bond funds shed $1.98 billion.

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That brings year-to-date equity outflows to $18.6 billion versus a $15.2 billion outflow for the whole of 2013, the data shows. Emerging equity funds have now suffered 15 straight weeks of outflows, a record that beats the previous 14-week losing streak seen in 2002, analysts at Morgan Stanley said.

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Morgan Stanley also noted that the $6.4 billion equity outflow comes after similar losses last week and the cumulative two-week outflows are the biggest since January 2008.

The exodus of foreign investors will alarm governments, many of which rely heavily on this portfolio capital to plug balance of payments deficits and finance spending.

Emerging assets have sold off heavily this year, adding to last year's hefty falls and hurt by the prospect of less money-printing by the U.S. Federal Reserve and the growth slowdown in China and other big developing economies.

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Emerging debt funds have fared relatively better, suffering $6.6 billion in outflows after losing $14 billion last year. Bonds in local emerging market currencies accounted for most of the losses, banks said.

Analysts predict that outflows will continue.

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"The pace of exit has accelerated and given the continued mixed EM cyclical data and the trend-following nature of retail flows, will likely persist," Barclays analysts said in a note.

"The outflows are not good news and from a macro perspective will have negative consequences by weighing on currencies, credit extension and ultimately the ability to consume."

By Reuters