Investors’ 2009 love affair with emerging markets is at risk of ending fast. All it took was renewed financial crisis fears (this time in Europe) and a few weeks of stock market losses. Fund outflows from emerging markets funds surged to their highest level since August 2009:
Citi: The increased risk aversion triggered by fiscal fears in Europe and hence a stronger dollar has led to widespread redemptions from emerging market equity funds. In the week ended Feb 3, net outflows from all EM funds totaled US$1.6bn, which was the largest since late August. GEM funds, the category took in the most new money last year, saw outflows rise to a 13-m high. Although Asian fund outflows were 47% less than those for GEM funds, at US$517m, they were the largest in five months.
We can see that funds for the hot economies of China and India have been hit especially hard with redemptions:
[image url="http://static.businessinsider.com/image/4b6ffca0000000000084272c/image.jpg" link="lightbox" caption="" source="" alt="weekly flows" align="left" size="xlarge" nocrop="true" clear="true"]
For emerging markets overall, the sudden change of fund flow has been short and sharp. Investor love is indeed fleeting:
[image url="http://static.businessinsider.com/image/4b6ffcc900000000009ad13d/image.jpg" link="lightbox" caption="" source="" alt="global emerging" align="left" size="xlarge" nocrop="true" clear="true"]
(Via Citi, Fun With Flows, Elaine Chu, 8 Feb 2010.)