Jul 02, 2013 04:10 PM IST | Source: CNBC-TV18

Outflows from emerging mkts easing; US jobs data eyed: EPFR

In an interview to CNBC-TV18, Cameron Brandt, Director - Research, EPFR Global said that the FII outflows from emerging markets had seen a moderate reduction. He added that India had seen an outflow of USD 12 million on the last day of the last week.

Cameron Brandt, director for research at EPFR Global said that the outflows from the emerging markets, based on daily numbers from last week, had reduced.

He presented some statistics to show the moderation in the outflows.

"Last week saw EM bond funds outflows post a weekly record of USD 5 billion. But, on the last day of the week, net outflows from EM funds were USD 400 million against a daily level of USD 1 billion earlier."

India's share in this outflow stood at over USD 12 million."

He expects strong reactions from the fixed income funds on the back of the US jobs data this week. The US Fed's actions on their quantitative easing programme impact the movements in this sector, he said.

Also read: FIIs pull out $7.5 bn from Indian capital mkts in June

Below is the edited transcript of his interview to CNBC-TV18.

Q: There has been some kind of a lull in the outflows of funds from emerging markets (EMs); atleast if you look at the stock indices. Can you give us some idea about whether you have actually seen a decline of in the exit of money from EM funds?

A: What you say is borne out by the daily numbers, which showed a moderating of outflows as last week progressed. Certainly what the flows showed over slightly longer period was that investors were not expecting a quite a degree of certainty from Ben Bernanke at the last Fed meeting.

Outflows had been heading towards inflows just before the meeting and that reversed sharply. But once the initial shock was over, we definitely saw on EMs equity funds side an easing of outflows. Investors began to really look hard at what he said and listen to the follow-up qualifications from other members of the Fed.

Q: I was actually looking for some numbers on the outflows in the latest week from EM funds. How does the latest statistic compare to the outflows in the week before?

A: We do have a Thursday to Wednesday week. The most recent week saw both EMs bond funds and EMs equity funds post net outflows. In case of EM bond funds, a weekly record of over USD 5 billion was posted.

However, on the last day of last week i.e. on Friday; net outflows from all EM funds were only USD 400 million. This was down from daily levels of around USD 1 billion plus earlier in the week.

The moderation was actually especially noticeable among the emerging Asia equity funds. Maybe, of the final day of the week, dedicated India equity funds only saw net outflows of over USD 12 million. It is not a particularly significant amount.

Q: Are you perhaps sensing some sheer exhaustion from selling? Is that the reason why we have seen that moderation? More importantly, any categories that were relatively less deserted or perhaps which even saw inflows towards the end because we saw the US markets recover towards mid of last week. So, did the develop markets perhaps see some inflows?

A: There are a couple of I don’t know. Sweet spot is the right word. On the EM, there are two areas that do seem to be viewed with optimism. One is frontier markets. Even though, they stumbled a bit last week, investors have felt that their risk was worth it given the stronger-than-average growth. There has been frequent lack of correlation between the global economy in general.

There has definitely been a shift back towards some of the big export stories. They stumbled very badly in May earlier this month on fears that the Japanese efforts to weaken the yen. It would really take a bite out of the many of the bigger stories especially Korea and China.

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Q: Just focusing then within the EMs particularly on India. Can you delineate something specific on India-dedicated flows?

A: India has followed the general trend, but at more moderate levels. India’s scene has been somewhat protected from some of the forces that everyone is worried about.

India is not as reliant on exports as some of its peers such as China and Korea and India has a strong domestic demand story. So, it is not as dependent on the global cycle being on the upswing.

So, it is not to say that India and India equity funds have had strong inflows. But the outflows have been more modest compared to China equity funds or Korea equity funds when people were worried about its export story.

Q: This week the nonfarm payroll numbers will be the most important thing to watch. Do you think they can be as defining as the Federal Open Market Committee (FOMC) statement itself? How do you see the funds behaving in the run up to the Friday numbers? How will they behave thereafter depending on the data?

A: Yes. Actually some strong reactions as people’s opinions of what those numbers will be are expected. But, we will see more of it on the fixed income side. Obviously for the next few months, everyone is going to be looking at data points like that in light of how it might either delay or accelerate the Fed’s stated intention of starting to wind down QE3; when the overall numbers are supportive.

So, a stronger-than-expected number will be very bad for bond funds and somewhat mixed on the equity side. If they come out surprisingly low, then people may reassess their exit from fixed income.

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