Frontier Funds’ Flagrant Role Reversal
EPFR’s 2013 detailed fund breakdown showed $4 billion in record frontier market inflows offsetting equal BRICs’ pullback, as all regional groups otherwise contributed to the almost $30 billion in equity outflows with only global versions positive for the year. Brazil, Russia and China withdrawals set new marks, with Korea a country exception attracting $2.5 billion. The CIVETS (Colombia, Indonesia, Vietnam, Egypt, Thailand and South Africa) received $600 million despite two members in the “fragile five” high current account deficit column and perennial political unrest in Bangkok and Cairo. Emerging Europe funds were down $3.5 billion despite Eurozone recovery sending $55 billion to core and peripheral Western destinations. All developed market vehicles took in $375 billion, around half to the US and $45 billion to Japan. By sector commodities experienced the greatest exit at $45 billion after topping the inflow list four consecutive years, and utilities also were shunned. EM bond and in particular hard currency flight were records with local currency’s $3.5 billion leakage one-tenth the category total. Brazil bonds especially sold off, as the fixed-income aggregate shrank almost $75 billion concentrated in the US and Asia-Pacific with post-quantitative easing asset class rotation finally underway with the Fed’s modest $10 billion initial buying reduction. Frontier indices also led the performance sweepstakes with the MSCI ahead over 20 percent and JP Morgan’s NEXGEM 5 percent at odds with core universe declines. Argentina and Pakistan were standouts on both lists, and Ukraine was a distinct loser. Sub-Sahara African share rallies had Kenya, Ghana, Nigeria and Zimbabwe up 25-50 percent, while Cote D’Ivoire’s 7.5 percent uptick paced the debt pack as Nigeria’s total return there was negative as investors pared overweight positions in advance of central bank head and presidential succession cycles. Jamaica’s NEXGEM 7.5 percent gain likewise contrasted with a 30 percent MSCI drop, the steepest on the roster, as it struggled to meet IMF program targets with flat growth and tourism outlooks.
Among the CIVETS Thailand has replaced Indonesia in headline Asia concern following a 15 percent stock market setback last year, as the opposition party plans to boycott the fresh February vote called by Prime Minister Yingluck and street protestors demand her resignation in favor of a “people’s government.” The military has thus far stayed removed from the impasse but another actor, the anti-corruption commission has entered the fray with charges against hundreds of lawmakers for supporting original amnesty provisions. Tourism has been relatively unaffected this episode but domestic consumption has slumped. Tech exports continue to bolster the trade surplus, which could benefit from further currency softness. However household debt at 80 percent of GDP, fuel price increases and infrastructure project postponement will indefinitely weigh on demand. Company Indochina diversification has also encountered complications with Myanmar proceeding slowly on investment approval and reform, and textile worker grievances in Cambodia met with harsh army response frightening frontier progress.
