Fund Outflows’ Anguished Encore
EPFR’s 2014 fund numbers tallied another year of $25 billion equity outflows in almost all regional and thematic categories, while the bond exit was cut two-thirds to $8 billion with hard currency improvement. The poor showing culminated in record December damage according to the IIF’s monthly portfolio tracker. All stock regions—global, Asia, Latin America and EMEA—were negative, with Russian selloff throughout the complex account for over half the total. India had a $4.5 billion standout gain with China and Greater China together off $9 billion. Mexican losses close to $3 billion were five times Brazil’s, as Europe and Africa were down $3 billion and $250 million respectively. By acronym groups BRICS, CIVETS and MIST were in the red an average $2 billion, while the generic frontier strategy had the lone inflow at $1.5 billion. Developed market equities took in $185 billion in comparison last year, with $85 billion and $15 billion separately to the US and Japan. By overall sector commodities and precious metals had $15 billion in net redemptions, while energy and healthcare were the big winners at $40 billion between them. In bonds external sovereign and corporate funds managed a $4 billion influx offset by almost $12 billion in local currency flight. By country Brazil China and Russia vehicles suffered the most as Asia-Pacific was the laggard in industrial markets receiving $150 billion in total. The better fixed-income allocation was reflected in benchmark index performance with the EMBI Global Diversified up 7.5 percent and the CEMBI 3.5 percent, against the GBI-EM domestic gauge sliding 5.5 percent in dollar terms. Sell-side houses predict low single-digit advances in 2015 as US Treasury strength wanes and commitments from institutional investors not captured in fund data resume at $20 billion-plus. Combined sovereign and corporate gross issuance should again near $500 billion, as they maintain average investment-grade ratings despite another year of 4 percent GDP growth just 1.5 percent above advanced economies. With quantitative easing forecast for both the Eurozone and Japan to counter Fed rollback, the yield differential should remain around 6 percent for emerging markets although most will either reduce or keep on hold their own interest rates.
The MSCI core index fell 4.5 percent for the year and the frontier one rose 3 percent but most countries were down in the two measures. Asia led the main pack with double-digit spurts in India, Indonesia, the Philippines and Thailand while in Latin America just Peru and in Europe Turkey were ahead. Egypt topped the list (+25 percent) but Gulf graduates UAE and Qatar faded in the homestretch for more modest performance. Sub-Sahara Africa plunged 15 percent on its sub-index with Kenya (+20 percent) the outlier. Central Europe’s decline was equal as Estonia’s was double at almost 35 percent. Bangladesh was the pacesetter (+45 percent) and Argentina was up over 15 percent as the lone Latin America representative alongside Trinidad and Tobago’s 9 percent despite the onset of energy export anguish.
