Funds flow drying up for Asia

KUALA LUMPUR: Asia ex-Japan saw a weekly net outflow of US$811 million (RM2.85 billion) in the week ended Aug 19, the largest redemption since March 2009, while global emerging markets saw an outflow of US$946 million, the largest redemption since December 2008, said Macquarie Research.

The research house said the data suggested risk appetite was moderating.

Citing EPFR Global, which provides global and emerging market fund data, Macquarie said China funds saw US$603 million of outflows that week, the largest redemption since January 2008.

"Concerns about policy-tightening were no doubt one factor behind the outflow," Macquarie said, adding that according to the Taiwan stock exchange, foreign investors withdrew US$386 million that week.

"Within Greater China, Hong Kong funds bucked the trend, seeing a modest net inflow of US$18.5 million," it said.

Macquarie said Singapore, Malaysia, Indonesia and India were all seeing much weaker inflows, while Thailand and the Philippines were experiencing outflows.

It said after 24 sessions of inflows from foreign investors, the Korean market saw outflows in the week ended Aug 19.

"Valuations are clearly excessive in Korea (in our view) and growing concern about the economic cycle is clearly weighing on foreign investor sentiment towards this highly cyclical market," Macquarie said.

Commenting on the outlook, it said weaker economic data recently had prompted market concerns about the strength of the cycle.

It said risk appetite was weakening as a result, something seen not only in fund outflows from emerging market equity markets, but also in debt markets where risk spreads had risen over the last couple of weeks.

"Asia's strong fundamentals — decent growth, low debt levels, healthy financial system — mean it is likely to remain relatively attractive to global investors for some time.

"However, it is important to bear in mind that liquidity in Asia is, to a certain extent, a function of the economic cycle," it said.

"If perceptions of the strength of the cycle now moderate (as we expected), liquidity will also become less of a tailwind for Asian equities than it was over 1H09."