Why are investors pulling money out of emerging markets like PH?

[iNeedMoney]

---

Why are investors pulling money out of emerging markets like PH?

by Cécile de Corbiere, Agence France-Presse
Posted at 06/13/2013 8:15 PM | Updated as of 06/13/2013 8:15 PM

The Philippine Stocks Exchange electronic board shows a downtrend index graph during trading in Manila's Makati financial district June 13, 2013. -- Photo by Erik de Castro, Reuters

PARIS - Investors have begun pulling money out of emerging economies mainly because they think that the US Federal Reserve central bank may be about to wind down its easy-money policy which has supported the economy and pushed funds into the financial system.
This prospect has reduced the willingness of fund managers to take risks even though only a few months ago their focus was more on a rapid rise of stock markets and signs that maybe assets prices were overheating.
At HSBC Global Asset Management France, the head of personal portfolio investment Olivier Gayno said that stock markets in emerging economies had fallen "by more than five percent in a month."
On Thursday, stock markets in Asia fell heavily, with prices in Manilla, Bangkok and Jakarta following a plunge of 6.35 percent on the Tokyo market. European stocks opened with falls of 1.0-1.5 percent.
The main cause is in the form of signals from the US central bank that it is likely to begin turning off the tap which has kept huge amounts of new money flowing into the US financial system each month as part of exceptional measures to help the economy to pull away from five years of crisis and weak growth.
This policy bolstered confidence which in turn reversed a reluctance of investors to take risk: instead they began switching funds into assets offering higher returns than government bonds, and in particular to emerging markets which have been achieving relatively strong growth.
This trend was so strong that the International Monetary Fund warned that the inflow of funds could cause overheating of in emerging economies.
But now investors are on the retreat and some of their investment funding is flowing out of these regions.
Indonesian Finance Minister Chatib Basri explained that three factors lay behind this "global phenomenon": the progressive reduction of Federal Reserve's programme to buy assets thereby injecting cash, a decision by the Bank of Japan at the beginning of the week not to ramp up its easy-money policy, and the attitude of the European Central Bank which reduced its key rates in May but not in June.
The retreat from risk is affecting a range of assets in addition to stocks.
"All asset classes in emerging countries have suffered,", commented AXA IM strategist Mathieu L'Hoir.
The biggest effect has been on government debt markets: bonds priced in terms of local currency had fallen by 8.0 percent in value in a month, he said.
The consequence of this is that the interest rate which some emerging countries must pay to borrow on the bond market has risen sharply.
This is because bonds are issued with a fixed interest rate for the life of the loan. If perceived risk rises, and investors sell bonds, the price of the bonds falls, and the fixed interest rises automatically relative to the new price. This sets the interest rate which investors will demand at the next bond auction.
Among countries caught by rising bond rates are Brazil, South Africa and Turkey, although Turkey is also under pressure from civil unrest.
At Capital Economics in London, analyst William Jackson said: "Turkey's dependence on foreign capital makes it one of the most vulnerable emerging markets to a deterioration in investor sentiment."
-- Forex pressures --
L'Hoir said that the flow of funds in search of higher returns from assets had "had the effect of creating bubbles", meaning that the price of bonds issued by states had been too high and the fixed interest attached to them had been too low.
The fall of bond prices now was therefore a process of "normalisation", he said, but this was generating some "turbulence."
The trend for some investment funding to flow out of emerging economies is affecting foreign exchange rates.
The South African rand has fallen by 7.0 percent in a month and the Brazilian real by 10.0 percent, AXA IM said.
The Bank of Indonesia has had to support its currency when it fell to the lowest level for four years. The authorities in Brazil and India have also taken steps to support their local money.
These price changes could eventually have an effect on economic activity in some countries which depend heavily on inflows of capital to finance investment and business.
But some experts hold that the change of direction of the investment flows could have a positive side. Thai Finance Minister Kittiratt Na-Ranong said that it was good to move away from overheating and allow the economy to find its balance.
His government did not intend to take immediate measures to slow down the outflow of capital or to support share prices, he said.
Capital Economics analyst Michael Henderson said: "Most emerging markets are likely to tolerate the recent sell-off in their currencies. But there are a few exceptions.
"Inflation concerns mean that currency weakness will put policymakers under pressure in Brazil and India, while heavy foreign exchange burdens imply that policymakers in emerging Europe could be forced to take additional steps to support their currencies."

Source: http://www.abs-cbnnews.com/business/...ing-markets-ph

[H.Wolowitz]

i am not sure unsay effect sa mutual fund rates ani.. pero if mo-ubos gani, palit jud ko ba.. kinsay expert diha nga maka-confirm? hehe

[666satan]

taas pa kaayo karon...mga after 3 months...palit pd ko...

[H.Wolowitz]

taas pa kaayo karon...mga after 3 months...palit pd ko...

out of topic man guro ta boss.. pero ngano naka-ingon man ka after 3 months pa?

[makie29]

i am not sure unsay effect sa mutual fund rates ani.. pero if mo-ubos gani, palit jud ko ba.. kinsay expert diha nga maka-confirm? hehe

As always, mutual funds will always follow the trend of the market, especially equity funds so with the continuing outflow of foreign funds, we could expect the NAVPS or mutual funds to continue to go lower.

[makie29]

Foreign investors are not pulling out their funds from the Philippines only, they are also doing the same in generally all emerging markets. Thailand and Indonesia are hit with the same fate in the last few weeks.

Basically, the US Fed's decisions to discontinue feeding $85B a month on emerging markets and Bank of Japan's overconfidence prompted funds to pull out from emerging markets. Also the speculations of the US economy improving may not also help.

Here in the Philippines, the recent news about the increased unemployment rate and the decrease in exports also didn't help. For me, its a gray area that the Philippine government should work on since it doesn't go in line with the 7.8% GDP in some way.

Because of the sudden drop (around 20% in just 3 weeks), panic and fear is dominating the market hence adding more selling or downward pressure.

[Eve's Apple Project]

Sad news to all those who are into stocks trading..

OT: paabot ko atong maayo kaayo nga POSITIVE thinkers..unsa kahay masulti nila ani? lol

[SioDenz]

Sad news to all those who are into stocks trading..

OT: paabot ko atong maayo kaayo nga POSITIVE thinkers..unsa kahay masulti nila ani? lol

Ikaw ramay cge ingun di magpatuo tuo sa NEWS nya nganu karun Nituo lagi ka?

Naa pakay pina SAD NEWS

So Mutoo ta sa News if ang News mupabor sa imung Negative nga panghuna huna diay?

Kung dili ta mag Tuo tuo ug News sama sa imung gi Ingun, so Kini nga NEWS Dako chance di ni tinuod Base sa imung Panghuna huna?

[Eve's Apple Project]

Ikaw ramay cge ingun di magpatuo tuo sa NEWS nya nganu karun Nituo lagi ka?

Naa pakay pina SAD NEWS

So Mutoo ta sa News if ang News mupabor sa imung Negative nga panghuna huna diay?

Kung dili ta mag Tuo tuo ug News sama sa imung gi Ingun, so Kini nga NEWS Dako chance di ni tinuod Base sa imung Panghuna huna?

Dong soi..Niingon ko SAD NEW sa mga nagStock Trading.. wa ko niingon sad news sa mga pinoy..atot nimo sio oi, tuki-a lagi di lagi dapat molayat..panik man sad ka dayon

[SioDenz]

Dong soi..Niingon ko SAD NEW sa mga nagStock Trading.. wa ko niingon sad news sa mga pinoy..atot nimo sio oi, tuki-a lagi di lagi dapat molayat..panik man sad ka dayon

Unsay panik ba oi, ikaw ray cge lihay.

So question, Tinuod ni nga News Dili? Nganu ingun man ka Sad NEWS, dis man nimu gi base imung Sadness di ba sa NEWS man gi post sa Ibabaw?

SO tuo diay ka ani nga News nag gi Post ani nga Thread? ingun baya ka di mag tuo tuo ug News - TUBAGA tawn bro malooy ka

TUBAGA TAWN - TUO BAKA ANI NGA NEWS GI POST SA IBABAW OR DILI?