ANZ’s excellent weekly portfolio flow update is out and starkly highlights the real impact uncertainty around the Yuan devaluation and Chinese growth is having on Chinese capital flows.
For the week ending March 19 EPFR funds flow data showed an acceleration in Chinese equity outflows to $US2 billion – the highest outflow since January 2008.
This theme was consistent throughout Asia with all countries, except Vietnam, suffering outflows and all Asian bond markets experiencing a reversal in bond flow.
Overall outflows for emerging Asia re-accelerated to $US3.4bn from $US1.6bn the previous week, reversing a moderation in outflows in the week before that. The break up of the data showed overall outflows from Asian equities picked up sharply (to $US3.1bn from $US1.8bn), while bond flows reverted to an outflow ($US302m) after posting inflows ($US114m) in the previous week.
Unsurprisingly US asset markets took up the bulk of the inflows, totaling $US14.2bn ($US10.5bn into equities and $US3.7bn into bonds). Flows into European asset markets were more modest ($US1.5bn into equities and $US321m into bonds). However Australian bond and equity flows have turned negative once again.
Importantly from a global macro perspective the ANZ says that reversification theme (money out of emerging markets into developed markets) continues to play out which means as the Yuan devaluation continues the risk that outflows will reach a destabilising tipping point for these emerging markets increases materially.
It also increases the potential for the outflows to turn into a rout.
Global investors will be watching the Yuan and Chinese capital flows closely.