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Russian Fund Flows: Surprisingly Positive
By Chris Weafer
Investors not spooked by Ireland or China. The weekly fund flows report from EPFR Global showed surprisingly strong inflows in the week to Wednesday. In total, emerging market funds took in $2,368 mln, which was also much better than the previous week and came against a backdrop of very week international markets. Fund investors, unlike many direct market participants, view such events as the Irish debt crisis and China tightening as both temporary and a buying opportunity. The EM Balanced fund category again took in the bulk of the new money, as investors still prefer not to make specific regional or country choices but to spread risk and exposure. That fund category took in $1,511 mln of the new money. In total, according to EPFR reports, investors have now invested close to $80 bln into emerging market funds in 2010 to date. That compares with last year’s record inflow of $83 bln. This year will set another new record for this asset class.
Emerging Europe is back in favour. The other surprise was the $137 mln invested into Emerging Europe funds. With the main issue in global markets the eurozone debt crisis, it had been expected that investors would be wary of contagion into this region. Again, they see this as either all priced into the low regional valuations or, as a temporary event. The fact that Emerging Europe funds have started to attract net new money flows – almost $250 mln over the past 6 weeks – is positive for Russia as Russian exposure accounts for almost 50% of the weighting in these funds. Over the first nine months of this year, investors withdrew $700 mln from these funds and that affected Russia more than other regional markets.
Turkey-Russia switch is now over. Russia’s share of last week’s $137 mln ($68 mln) more than compensates for the net $25 mln withdrawn directly from Russia funds last week. That withdrawal was, however, better than the net redemption of $33 mln from Brazil funds, the $102 mln taken from India funds and the $95 mln redeemed from Turkey funds. The Russia to Turkey switch that lasted from early July to late October is now well and truly over. China funds reported inflows of $517 mln last week, the eleventh straight week of positive flows. Retail fund investors share none of the concerns about a slowdown in China that have affected the Russian and other global markets in recent weeks.
Chris Weafer is the Chief Strategist for Uralsib Group