Institutional funds fleeing emerging markets – except Russia

Between China and the euro zone, the big money has been moving out of emerging markets for two weeks now — the longest period of net redemptions from this asset class since December.

Image courtesy Mika S:

Sunset over Moscow

The rationale for the number of investors cashing in their emerging market ETF and mutual fund shares boils down to a return to the key concerns of 2011 according to EPFR Global, which tracks this data.

China is definitely slowing and the euro zone still faces plenty of challenges even though Greece has been quiet after its latest bailout.

Between these two factors, the global economy looks tilted toward weakness, driving $716 million out of emerging markets stock funds and ETFs like EEM (quote) last week alone, and a full $1.5 billion so far this month.

For the year to date, EPFR reports that this asset class is still $24 billion richer than it was at the end of 2011, so we are well ahead of the game — investors aren’t exactly all¬†hurtling for the exits here.

If anything, this time last year emerging markets funds were still bleeding a net $14 billion, so this may simply be a temporary reallocation of global funds.

China and India funds like FXI (quote) and INP (quote) have been reeling, while Argentina’s increasingly investor-unfriendly policies have kept foreign capital fleeing former havens in Latin America.

Among the BRIC countries, only oil-rich Russia continues to see foreign money flow into its dedicated funds. Russian portfolios like RSX (quote) took in a net $114 million last week as the infamous “Putin put” of elevated political risk unwinds.

Tracking fund flows is tricky business. Sometimes it creates a vicious circle as traders start chasing hot areas of the market after a rally has already run its course.

However, because the numbers are so large and big allocations take time to work through the market, trends rarely turn on a dime once they’re established. This means that Russia now has the fuel to keep moving — RSX is up 3.5% since April 10 — while Asian markets now need to turn sentiment around before they can embark on their own rallies.

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