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
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.”
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
“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.
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