FII redemption bottoming out; eco data to sway flows: EPFR

Indian markets have seen foreign institutional investors (FIIs) outflows to the tune of Rs 5,000 crore in the last five days.Global fund analysts believe that the situation may settle down as there are signs of bottoming out redemptions in EM equity and bond funds.

Cameron Brandt, director of research at EPFR Global says that the maximum redemption has been from the US funds. Investors have made up their mind on Fed tapering to being, and accordingly adjustments have been made, he told CNBC-TV18. Going forward, EM fund flows will be determined by economic data, he adds. Also read: Goldman downgrades emerging Asia currencies Below is the edited transcript of his interview to CNBC-TV18. Q: An outflow of almost USD 8 billion in the developing market Exchange-Traded Funds (ETF) YTD has been seen. Where is the maximum redemption coming from? A: They have been happening from the US funds. Outflows this past week were the biggest in over 5 years. It certainly seems that the investors think that the Fed is beginning to taper have started making their adjustments at home. We saw over USD 12 billion flow out of all US equity funds this past week and another USD 5 billion come out of US bond funds. Q: How much more pressure will emerging markets (EM) face once money becomes scarce post-tapering by Fed? A: Things may settle down. A fair amount of reallocation and positioning for a move to taper off QE3 has already happened. We were certainly seeing signs of a bottoming out of redemptions both among EM equity funds and EM bond fund. Both are actually still in credit YTD barely. There is certainly a bit more money that could be pulled out to bring things back to neutral. A shift back to more of a country-by-country focus will really drive things in the coming weeks. Certainly, in the end of the first quarter this year, a fairly broad appetite for EM fund groups and assets was seen. There was not a huge response to most individual events in different countries, but lately we have seen flows much more reactive to economic data; to geopolitical events. That maybe the trend driving EM fund flows.