Emerg­ing mar­ket out­flows big­gest since 2016 US elec­tion


In­vestors have started pulling out of emerg­ing mar­kets with the big­gest slump in port­fo­lio flows since the 2016 U. S. pres­i­den­tial elec­tion, ac­cord­ing to an­a­lysts at the In­sti­tute of In­ter­na­tional Fi­nance.

Asia has taken the brunt of the re­ver­sal with South Korea, In­done­sia and Thai­land see­ing the big­gest out­flows of the coun­tries in the study. Those with­drawals have been con­cen­trated in eq­ui­ties, while bonds have been hit less hard. In­dia is buck­ing the trend with con­tin­ued de­mand for both stocks and bonds.

IIF an­a­lysts say the coun­tries they are track­ing reg­is­tered nearly $4 bil­lion in out­flows since flows turned neg­a­tive on Jan. 30. Some $3.4 bil­lion of that has been from eq­ui­ties.

"While we re­main gen­er­ally op­ti­mistic on EM flows this year, down­side risks should not be un­der­stated," IIF an­a­lysts led by Fiona Nguyen wrote in a note. "A sus­tained global eq­uity mar­ket sell off would clearly be one such down­side risk."

Mean­while, Asian eq­uity mar­kets tend to track what hap­pens in the U.S. more than most, and Tues­day was no ex­cep­tion.

Just a few hours af­ter the late-in-the-day plunge that saw the Dow Jones In­dus­trial Aver­age slide as much as 6.3 per­cent, bourses over the other side of the world started to open, tak­ing their cue from New York to pro­vide Asian traders with their own whiteknuckle ride.

By the end of Tues­day, Ja­pan's Nikkei 225 Stock Aver­age -- more closely cor­re­lated with the U.S. than other mar­kets in the re­gion -- had en­tered a cor­rec­tion, while the Hang Seng In­dex in Hong Kong was down the most since 2015, as gauges of volatil­ity through­out Asia spiked.

As U.S. in­dex fu­tures sig­naled an­other ses­sion of pain ahead there, the MSCI Asia Pa­cific In­dex was down 3.5 per­cent as of 4: 25 p. m. in Hong Kong, con­clud­ing a three-day rout that erased an ad­vance this year that topped 8 per­cent.

"This is a test of nerves," said John Padilla, head of eq­ui­ties at Metropoli­tan Bank & Trust Co. in Manila. "But if you look through the chaos val­u­a­tions have be­come rea­son­able so it's a good op­por­tu­nity for the strong-hearted. The bias has been for in­vestors to stay cau­tious and wait for the sell­off to blow over."

Just what trig­gered the sell­off is up for in­ter­pre­ta­tion, with the lack of a spe­cific cat­a­lyst leav­ing some traders be­wil­dered and won­der­ing what comes next. In­vestors in Asia are re­act­ing in dif­fer­ent ways, with one of the world's top-per­form­ing macro hedge funds, Asia's PruLev Global Macro Fund, ac­tively man­ag­ing risk af­ter start­ing to pare down shares a few weeks ago. At Janus Hen­der­son In­vestors in Sin­ga­pore, a fund man­ager has boosted de­fen­sive stocks, while a Thai bro­ker­age is ask­ing clients to hold on to cash.

In terms of what comes next, Tues­day's plunge pushed the Asia Pa­cific gauge's 14-day rel­a­tive strength in­dex below 30, the level that traders typ­i­cally see as a sign of ex­ces­sive losses.

While some an­a­lysts said the pace of the mar­ket's slump caught them by sur­prise, they pointed out that con­di­tions may have been ripe for an ad­just­ment af­ter its rapid ad­vance.

The Nikkei Stock Aver­age Volatil­ity In­dex surged the most since 2013 af­ter its coun­ter­part in the U.S. -- the VIX - - jumped by record.

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