Fund Flows Into Asia Now Outpace Redemptions: Citi

Source : The Business Times, September 11, 2007

Bulk of inflows in past 2 weeks goes to North Asian funds

(SINGAPORE) Funds flowing into the Asian region in the past two weeks have surpassed redemptions in late July and August period, when equity markets suffered sharp losses on concerns of a global credit crunch, according to a Citigroup report yesterday.

Inflows totalled US$2.9 billion in the past two weeks, while year-to-date, net inflows to Asian funds, which are long strategy, came to US$4.7 billion. This is less than half the amount taken in over the same period last year.

Investors, spooked by sub-prime fears in the US, redeemed their investments into funds, leading to the carnage in stock markets.

Some market watchers speculate that inflows into Asia are coming back due to weak prospects in the US, so most of the funds are flowing into Asia. Others believe that the selling in the recent months has been overdone.

The bulk of the inflows went to country and regional funds in North Asia, accounting for 67 per cent of the total inflows. This compares with 56 per cent the week before, said the report.

Hong Kong funds garnered the most proceeds, US$343 million, among all the country funds in terms of dollars and a proportion of asset size.

For the week of Aug 30, inflows to Singapore country funds were US$1.9 million. This compares to the past four-week total of outflows of US$131.5 million.

The report highlighted that foreign investors were net buyers in most markets except Korea. Foreign net sell of Korean equities came up to US$18.4 billion over the past three months, the biggest in history. 'The good news is that selling pressure seems to be subsiding. In the week ended last Wednesday, net sell decreased for the second week to US$426 million from US$3.2 billion at the peak three weeks ago,' noted Citigroup analyst Elaine Chu in the report.

Foreign investors resumed buying last week in countries such as the Philippines, Taiwan, India, Indonesia and Thailand.

Even though strong inflows in the past two weeks have helped restore the uptrend of Asian fund flows, given the increasing volatility of Asian markets, flows are likely to become more volatile as well, said the report.

The report also noted that inflows to Global Emerging Market funds finally resumed after six weeks of redemptions. Year-to-date, net outflows are down to US$367 million, compared with US$4.7 billion inflows a year ago.

International funds, unlike their Asian and GEM counterparts, recorded net redemptions in the week starting Aug 30. 'From a short-term perspective, flows are still heading south,' noted Ms Chu in the report.