Fund Trackers’ Strange Footprint Sightings
Going into December dedicated equity fund outflows of $35 billion were double the local currency-oriented bond inflow total which has also waned in recent weeks, according to EPFR. The BRICs including South Africa accounted for half the exit, with ETF selling accounting for one-quarter of India’s loss. In Latin America, Chile and Mexico declines were also due mainly to ETFs, while positive stock allocation has only gone to a handful of countries including Colombia, Poland and the Philippines. On the MSCI Colombia’s and Mexico’s market drops have been limited to single digits, while the sole core gain was Indonesia’s despite currency correction. Frontier funds continue to be shunned with African destinations in particular off an average 25 percent. Kenya has been battered the most as it turned to the IMF for emergency assistance on 20 percent-level inflation and interest rates, while world-beating oil growth story Ghana has sputtered heading into the traditional pre-election high government spending period. In the BRIC category, Brazil and China have each sustained $5.5 billion in redemptions. Holders are skeptical of Chinese central bank claims that lenders and developers can absorb a 20-30 percent fall in housing prices and that local government non-performing credit so far is less than 3 percent. Japanese investment trusts have joined international peers in spurning Brazilian assets despite the removal of capital controls as GDP growth of 3 percent will likely come in at half of above target inflation. Rumors have swirled there that small banks reliant on wholesale lines and domestic bond issuance are in trouble as the Rousseff cabinet continues to shed ministers on corruption charges. Russia had experienced a $1.5 billion exit before parliamentary elections brought ruling party reversal and street protests as yearly capital flight by official estimates could be $80 billion. Public sector wages were raised 6 percent in October, but the largesse did not sway voters who cut the Putin’s United Russia grouping to a simple from a two-thirds majority.
Europe after its solid 2011 start has become a pariah region with even its remaining AAA-rated advanced economy members put on ratings watch. Croatia and Slovenia have been among better frontier performers as elections put opposition candidates campaigning for overdue fiscal and competitive adjustment in office. Zagreb is on track for EU partnership and the new Slovenian leader headed a business with ties throughout the former Yugoslavia. Lithuania, on the other hand, joined the bottom ranks after a bank collapse which resulted as well in closure of its Latvian arm as Baltic solidarity proved double-edged.
