Reversal of fortune for emerging markets - FT

12:44, 11 September 2008
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Ukraine is among the hardest hit stock markets in dollar terms

Outflows from emerging markets bond and equity funds reached $29.5bn (£16.8bn) over the past three months, the highest level since at least 1995, with withdrawals gathering pace over the past week, according to Financial Times.

Investors headed for the exits as rising fears over slowing world growth and the state of the banking system over the past week added pressure on emerging markets - which were already reeling from weaker commodity prices, inflationary pressures, a stronger dollar and geopolitical concerns.

Investors switched $1bn out of equity and fixed income funds on Monday, one of the highest daily outflows since records began in 1995, said EPFR Global, the data provider.

Last week there were outflows of $1.6bn, bringing the total since June 4 to $29.5bn, the largest three-monthly figure since 1995.

Nick Chamie, head of emerging markets research at RBC Capital Markets, said: "Since July, investors have finally become aware of the severity of the global slowdown. The emerging markets are a leveraged play on global growth, so in a serious downturn, investors will naturally sell them."

David Lubin, emerging market strategist at Citigroup, said: "Emerging market asset prices rose strongly in a world of rapid growth and high commodity prices, creating something like a virtuous circle.

"Now we`re faced with the risk that this process is unwinding. The strength of the dollar has put emerging economies` currencies under pressure just at the point where a rise in global risk aversion is pushing investors away from exposure to developing countries."

The benchmark MSCI emerging market index yesterday fell 1.27 per cent to 857.44, the lowest level since March 2007. The fall extended its decline to 4.8 per cent over the past week and 22 per cent over past three months.

The hardest hit stock markets in dollar terms are Ukraine, which has fallen 58.8 per cent this year in part on geopolitical worries; China, down 57 per cent amid fears it had risen too far on a bubble; Hungary, down 49 per cent on worries over growth; Pakistan, down 46.7 per cent amid political turmoil; and Vietnam, down 46.4 per cent in the face of a sharp rise in inflation.

Russian stocks have been under pressure, with the benchmark RTS index down 4.4 per cent yesterday and 46 per cent since its May 19 peak.

Emerging market sovereign bond yield spreads have risen to 330 basis points over Treasuries.

Commodities jitters and Insight, Page 40 Pressure on Shanghai, Page 41

Financial Times

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