As yields continue widening rapidly, the pace of outflows
from emerging market bond funds has picked up, crushing
possibilities of dollar-denominated bond issuance for Latin
Investors pulled $2.64 billion from emerging market bond funds
during the week ended June 19, according to EPFR, up from $2.53
billion of outflows the previous week. They took $3.48 billion
from EM equity funds, and LatAm equity funds lost $493
The US Fed said June 19 that it would likely this year begin
cutting the $85 billion a month of liquidity it is injecting
into markets under its quantitative easing (QE) program.
The announcement pushed bond markets wider as investors
adjusted their positions to reflect expected higher rates. The
yield on the 10-year US Treasury has continued widening to hit
2.57% Monday, some 24 basis points wider than the day of the
Fed’s announcement and 44 basis points wider on
"Overall the environment could be hostile for EM equity and
bond funds for some time," Cameron Brandt, director of research
at EPFR, told LatinFinance. "The focus on China's
out-of-kilter credit markets, the long wait until the Fed does
or doesn't act on tapering QE3 and Europe's numerous unresolved
issues mean there will plenty of potential selling triggers
well into 2014."
The uncertainty made finding an entry point difficult for
investors wanting pick up fresh paper as prices fell.
"The outflows will continue near term, but dedicated money
sees buying opportunities because there is huge relative
value," says a US-based emerging market debt portfolio manager.
"If had the money I would buy – if one buys something,
a year from now you will be doing well."
Year to date, EM bonds funds still have $22.4 billion net
inflows, EM equity $5.73 billion net inflows and LatAm equity
has a net loss of $3.71 billion. LF
Debt, equity funds continue poor