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EM exodus advances as Brazilian equity funds lose cash 0

Jun 10, 2013

Brazilian funds posted outflows last week, echoing trends elsewhere in EM, where debt funds have suffered post-crisis outflow records

Investors are pulling cash out of Brazilian equity funds, echoing trends in other emerging market asset classes such as debt funds, which have suffered post-crisis outflow records.

Brazilian debt funds lost $213 million-equivalent last week, their highest outflows since October 2011, while equity funds lost $531 million, according to data from Itaú released Monday.

That echoed a broader trend in the global markets: investors yanked $1.52 billion from emerging market debt funds and $3.99 billion from EM equity funds in the week to June 5, according to EPFR. LatAm equity funds lost $198 million, the data provider said.  

Outflows from EM hard currency funds were the highest since the second quarter of 2007, according to EPFR. Cash left local currency funds for the first time since the third quarter of 2012.

The sharp reversal in sentiment comes amid volatile markets as investors reassess their perspective on US Treasury yields, trying to judge when the Federal Reserve will begin exiting quantitative easing and normalizing monetary policy.

The uncertainty has squashed opportunities for Latin American borrowers to tap debt markets.

"There's been substantial EM fixed-income outflows in the last two weeks, you could feel that," said one LatAm syndicate banker. "Investors are raising cash to fund redemptions."

'Cash depleted'

A rise in US Treasuries of around 50bp in May has already driven losses in investment portfolios, cutting risk appetite among asset managers, said Aziz Sunderji, emerging market corporate credit strategist at Barclays.

"In a world where you don't know the outlook two months ahead, you probably want to sit on typical or higher than normal cash levels - and those have been depleted by record-breaking issuance," he said.

EM debt lost 1.72% in the week ended June 6, for a year-to-date loss of 3.47%, according to Lipper. By comparison, global income funds were down 0.19% during the week, and are down 1.52% year-to-date. International income funds were up 0.52% during the week, for a 2.85% loss year-to-date.

LatAm equity funds fell 2.76% during the week ended June 6, and are down 7.32% year-to-date, according to Lipper. EM equity funds were down 2.82% during the week, to bring them to a year-to-date gain of 2.63%. By comparison, global small and mid-cap funds were down 1.65% on the week, and have earned 10.05% year-to-date. LF


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“The crisis has been a setback for reserve diversification."

Jan Dehn, Ashmore Investment Management