Emerging markets see capital outflow amid coronavirus fears - BCS Global Markets
MOSCOW. Jan 31 (Interfax) - Emerging markets saw an outflow of capital in the week that ended on January 29 due to fears about the spread of the coronavirus, BCS Global Markets chief strategist Vyacheslav Smolyaninov said in a report.
The net capital outflow from Russia's stock and bond markets through funds, including all funds that invest in Russian equities and bonds, totaled $20 million in the week from January 23 to 29, compared to an inflow of $420 million in the previous week, EPFR Global data show.
"The positive momentum of flows of the past two months has turned around. Investors are trying to assess the economic consequences of the new coronavirus. We still see risks of a market drop on the short horizon," the report said.
The net outflow from Russian equities through funds, including all funds that invest in Russian stocks, totaled about $40 million in the week (first week of outflow), compared to an inflow of $280 million in the previous week. Funds that invest only in Russian equities saw an outflow of $80 million (first week of outflow), compared to an inflow of $100 million a week earlier.
"The main reason for the negative result of Russian funds last week was an outflow from ETF funds in the amount of $57 million. Investors apparently took profits after the rally of the last two months. In addition, as we expected, major inflows into GEM equity funds stopped last week due to growing concerns about the coronavirus. Although GEM funds reported a net capital inflow, it was small ($235 million). We expect that EM equities will not be able to attract new money in the next few weeks and see risks of a drop on the Russian market," Smolyaninov said in the report.
The net inflow into Russian bonds through funds, including all funds that invest in Russian bonds, amounted to $20 million in the week, compared to an inflow of $140 million in the previous week (ninth week of inflow). Bond funds focused only on Russia saw a slight net inflow of capital.
"Bond markets are more inert and less subject to the influence of speculation. Last week investors just stopped pumping new money into funds in order to see how the situation develops and assess the potential economic consequences of the coronavirus. The inflow of capital into Russian funds stagnated, while GEM funds received just $162 million after almost $10 billion of new investment in the preceding six weeks. We see risks of a decline in this category of assets as well on the horizon of the next few weeks," Smolyaninov said.