According to data from funds tracker EPFR, global investors yanked $9.3 billion from stocks in emerging markets in the week to Wednesday that is the most since the depths of the 2008 global financial crisis.
The EM funds were hit by issues including MSCI, the US-based provider of fixed income, equity, hedge fund stock market indexes, and equity portfolio analysis tools) stalling on adding A-shares of China to its benchmarks.
In a note, analysts at Société Générale said the rates markets are more concerned about whether euro bond yields and higher US dollar may prompt a reallocation of assets to developed markets and therefore high capital flows out of emerging markets are seen.
EPFR disclosed that a big majority of the fund — $7.1bn — was pulled from funds investing in equities of China after weeks of strong inflows while Latin American funds fell $442m and GEM funds lost $829m. ANZ analysts said the recent outflow from China funds was possibly because of increased volatility in the domestic share markets.
Chinese equities became more accessible late last year for international investors after relaxation was offered in the context of access rules for Shanghai-listed A-shares. The MSCI, to the surprise of market, announced it would not include the Shanghai-listed A-shares in its global and emerging markets benchmarks. MSCI commented that it expects to include the Chinese shares soon but not for issues regarding ownership and liquidity are resolved.
In the last few weeks, the US dollar has strengthened and this has often resulted in the underperformance of emerging markets’ assets. In the last month, the Russian ruble dropped 8.6 percent against the US dollar, the Malaysian ringgit is down 3.2 percent, and the Colombian peso is off 5.9 percent. The worst sufferer has been bonds as improving US economic data and rising yields on German government debt have prompted investors to think again about exposure to lower-rated credit.