Wednesday, March 2, 2011

Investors Fleeing Emerging Markets

Emerging markets stocks have been a major theme of the Opportunistic portfolios at Stone Fox Capital so I'm actually pleased to see investors fleeing emerging market stocks. Weak emerging market performance has reduced portfolio performance over the last 2-3 months, but it also provides opportunity for picking up long term growth stocks on the cheap.

According to this AP report, EPFR Global reported that investors pulled $5.45B out of emerging market funds during just the second week of February alone. Yes, thats correct. It only took a few scary moments in the Middle East and some high inflation for investors to jump ship.

Emerging markets have long been a traders market as investors jump in and out depending on the market direction. Oddly though, these markets provide a lot more long term growth and hence investors should be buying the dips in a lot of these markets. That doesn't appear to be the case though as I wrote yesterday about how the Chinese market has perked up this year, but its hardly been noticed.

Our models have added ICICI Bank (IBN) in India, ChinaCache (CCIH) in China, and Freeport McMoRan (FCX) as a copper play that strongly relies on emerging markets growth. These stocks were all down from 20-50% providing opportune entry points. CCIH alone was down 50% from its highs after a successful IPO. Where exactly were investors going?

It's possible that this trend last a lot longer so be careful on any entry points. Sticking to high quality names that are under pressure might be best method, but just don't fear this area like in the past. Most of these economies are stronger then the US and the developing world. And yes the governments have a lot less debt as well.


  • According to fund tracker EPFR Global, fund managers and other investors yanked $5.45 billion from emerging markets funds in China, India, Brazil and elsewhere in the second week of February and placed it in equity funds of advanced economies -- their biggest weekly inflow in more than 30 months.
  • Developed market funds recorded their seventh straight week of inflows in mid-February -- with European equity fund flows hitting 41-week highs. So far this year, investors have committed $47 billion to U.S., European, Japanese and global equity funds -- $29 billion of it into the U.S alone.
  • Meanwhile, investors have pulled out over 20 percent of the $95 billion they parked in emerging markets during 2010 since mid-January, EPFR said. Since the beginning of the year, outflows totaled $1 billion from mainland Chinese equity markets alone.
  • India's Sensex has slid 10 percent, and Brazil's Bovespa is down 4.4 percent. Indonesia's SE Composite Index has dropped 5.1 percent. Vietnam's Ho Chi Minh index is down 3.8 percent -- wiping out some small investors hoping to strike it rich.
  • Shanghai Composite index has risen 4 percent since the start of the year -- buoyed by a wall of liquidity that was engineered by Beijing to ward off the global recession and which it is now struggling to contain. (market isn't up this year b/c of liquidity)


Disclosure: Long CCIH, FCX, IBN. Please review disclaimer page. 

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