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Hopes high for share sales in 2014 despite fund outflows

Jan 2, 2014

Renewed optimism in the wake of busiest year for Latin American equity sales since 2010

Total equity flows into emerging markets have buoyed expectations of a pick-up in stock issuance by Latin American companies in 2014, despite outflows last month from emerging market equity funds.

Investors have continued adding to their equity allocations even though global emerging market equity funds tracked by EPFR saw $15.6 billion of outflows in 2013, $4.3 billion of which exited in the two weeks to December 20, according to Barclays. This followed a bumper year for equity sales in Latin America.

Data from eight major emerging markets indicated total net foreign equity inflows of $23 billion between August and December, the investment bank said. A high proportion of retail investors in equity funds likely accounted for the trend diverging from that of total flows, the investment bank says.

"We interpret the total equity flows and equity fund flow data as meaning that retail-type foreign investor sales are being met by net purchases from other foreign investors," said Barclays.

"These could be private institutional, quasi-public, and private wealth buyers whose actions are difficult to capture in conventional fund flow data."

The analysis gave optimism after a busy year in the equity markets in Latin America, although one with middling performance: emerging market equity funds lost 1.77% of their value in the year to December 19 - those focused on Latin America lost 14.72%. Global small and mid-caps performed better, gaining 25.6%.

However, persistent turbulence means that companies will need to time their equity capital raises carefully, analysts said.

"We are heading into the fifth year of very volatile market conditions. The window of opportunity for new issuers to hit the market has been narrow," said Fabio Nazari, head of equity capital markets at BTG Pactual. LF



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