Emerging-Market Stock Funds Post Biggest Outflows in 19 Months on Greece
By Bloomberg News
Feb. 12 (Bloomberg) -- Investors pulled the most money from emerging-market equity funds in 19 months as Greece’s debt crisis escalated and the Federal Reserve laid the groundwork for exiting its record credit expansion.
Outflows from emerging-market equity funds reached $2.9 billion in the week to Feb. 10, the highest since the period ended July 9, 2008, according to Cambridge, Massachusetts-based research firm EPFR Global in an e-mailed release.
“Investors fretted that Greece’s sovereign debt woes could drive up yields, and hence credit costs, worldwide,” EPFR said. “Further talk by U.S. Federal Reserve officials about an ‘exit strategy’ also weighed on sentiment.”
European leaders yesterday ordered Greece to get the bloc’s highest budget deficit under control and promised “determined” action to staunch the worst crisis in the euro currency’s 11- year history.
The MSCI Emerging Markets Index has declined 6.5 percent this year amid concern that Greece, Spain and Portugal may struggle to repay lenders as their budget gaps widen. That compares with the 4.9 percent drop in the MSCI World Index, which tracks developed markets. The developing-nation gauge surged a record 75 percent last year, more than triple the 23 percent gain by the Standard & Poor’s 500 Index. Brazil, Russia, India and China led gains among the major global markets in 2009.
Less Profitable
While emerging-market stocks outpaced advanced-nation equities by about 10 percentage points a year during the past decade, returns since 1975 show they were a less-profitable investment, according to a report by by Elroy Dimson, Paul Marsh and Mike Staunton of London Business School. Emerging-market stocks will probably only outperform advanced markets by about 1.5 percent a year over the “long run,” the authors wrote.
Federal Reserve Chairman Ben S. Bernanke said in congressional testimony Feb. 10 that a potential increase in the Fed’s discount rate would be part of the “normalization” of lending “before long” and wouldn’t signal a change in the outlook for monetary policy. U.S. policy makers are trying to determine when to tighten credit with unemployment at 9.7 percent and the world’s largest economy forecast to grow at the fastest pace since 2005.
High-yield bond funds posted outflows of more than $1 billion for their worst week since early in the third quarter of 2008, EPFR said. Japanese equity funds had net inflows for a seventh week, the longest since July 2008.
Asia ex-Japan Equity funds had their worst week since August amid concerns over a possible trade spat after the U.S. proposed to sell arms to Taiwan, EFPR said.
China halted planned military exchanges with the U.S. and said it will punish companies involved in a Pentagon plan to sell weapons worth $6.4 billion to Taiwan.
To contact the Bloomberg News staff on this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net
Last Updated: February 11, 2010 21:35 EST
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