US-based LatAm equity funds see market value drop

US-based LatAm equity funds see market value drop

Asset Management Capital Markets Equity Funds Latin America

US-based equity mutual funds focused on Latin America saw their combined market value drop by nearly $2.9 billion in the week ended March 11, the second largest weekly decline on record, according to data released on Thursday by mutual fund tracking service Lipper.

The losses in the US markets, which spilled over into Latin America, accelerated on Thursday after US President Donald Trump spoke from the Oval Office late the night before and announced a ban on travel to the US by anyone from within the 26 European nation Schengen Area of open borders. Trump did announce some economic stimulus measures, but not enough to alleviate investor panic that has gripped global markets and send US stocks into bear market territory.

"Part of the reason why the markets sold off so violently today was not because Trump announced a travel ban vis-à-vis Europe, but because he didn't announce something that would actually work in containing the problem. So it was as much as what he didn’t do than more than what he did," said Alejo Czerwonko, emerging markets strategist for the chief investment office of UBS in New York.

"What Latin America is concerned about is slowing economic activity worldwide, lower commodity prices generally, and more specifically a very sharp decline in oil prices this week," he said. 

This figure does not reflect the stock market rout on Thursday, where the Dow Jones Industrial average fell 9.99 percent in its worst one day plunge since the infamous "Black Monday" loss of in October 1987.

While investors were net sellers of Latin American-focused equity mutual funds, to the tune of $45 million during the latest week, this net outflow was relatively small in the context of much larger movements of cash in and out of the sector over the course of the last year.

Assets under management for the 25 US-based funds now stands at $10.5 billion versus $13.5 billion in the prior week. At its peak in early January 2011, the Latin American equity fund category held as much as $23.5 billion in AUM, according to the data set which started in 1992. The biggest weekly drop in AUM, $3.3 billion, occurred in early October 2008, the Lipper data shows.

The net outflow in the latest report broke a three week streak of cash flowing into the sector, even as global markets were selling off. During the reporting week, benchmark indices in the region tumbled with Brazil down 32.31%, Mexico off 10.89% and Chile losing 8.89%. NYMEX crude oil future prices fell 29.3% during the reporting week.

Global markets have been roiled by the spread of the novel coronavirus COVID-19, which originated in Wuhan, China and has infected more than 125,000 people around the world. The number of deaths, as of Thursday, reached 4,614, according to the World Health Organization.