RED ALERT: Emerging Market Debt-Linked Note Sales Plunge 89% On China, Fed; Emerging Market Equity Fund Outflows This Year Surpass Whole Of 2013

Emerging Market Debt-Linked Note Sales Plunge 89% on China, Fed

Sales outside the U.S. of structured notes tied to emerging-market nations’ debt fell 89 percent in January from a year earlier on concern that the countries are at risk as the Federal Reserve slows its bond-buying program.

Banks sold $53.7 million of securities last month linked to the debt of six countries including Brazil, Ukraine, and Nigeria, down from $477.1 million a year ago, according to data compiled by Bloomberg. While the investments typically offer higher yields than those tied to developed-market sovereign debt, the countries have a higher risk of defaulting.

Investors avoided notes linked to the government and treasury obligations of nations such as Russia, which canceled a bond auction for the second straight week after yields on its bonds maturing in 2028 climbed to record highs. Currency and stock markets have fluctuated as manufacturing slowed in China and the U.S., and the Fed announced it would further trim its monthly bond-buying program.

“The old joke was that emerging markets were the market you can’t emerge from when you want to,” Walter “Bucky” Hellwig, who helps manage $17 billion at BB&T Wealth Management in Birmingham, Alabama, said in a phone interview. “Whenever you have issues with sovereign debt, there’s a ripple effect you can’t foresee.”


Investors Staged A Historic Move Out Of Stocks And Into Bonds This Week

This past week was a historic one for fund flows — investors pulled a historic amount out of equity funds while at the same time putting a historic amount into bond funds, and over 95% of the flows were in and out of ETFs.

Citi analysts Markus Rosgen and Yue Hin Pong relay the details in a note to clients:

U.S. funds had record-high inflow into bonds and outflow from equities — In the week ended 2/5/2014, there was a $14.8 billion inflow into bond funds and a $28.3 billion outflow from equity funds, representing record highs in both cases. The inflow into bonds was driven by U.S. bond funds which saw $13 billion of inflow. On the flip side, U.S. equity funds were hit by a $24 billion outflow. More than 95% of these flows were attributed to ETFs.

$6.4 billion of outflow from EM funds — This was the 15th week of outflows from EM equity funds and was the largest outflow since August-2010. The major outflow was from GEM funds, at $4.8 billion, while Asia funds had $966 million of outflow. EMEA funds and LatAm funds had respective outflows of $361 million and $199 million. China funds ended a 6-week run of inflows with $132 million of outflow this week.

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$3.6 billion net selling of Asia equities by foreigners — In the week ended 2/5/2014, foreign net selling in Asia widened as Taiwan and Korea saw over $1 billion of net selling. Thailand was also sold down by $516 million. In Japan, during the week of 1/31/2014, there was a massive $7.0 billion net selling by foreigners.
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Equity funds have record week of withdrawals: Citi

Emerging market equity fund outflows this year surpass whole of 2013

Feb 7 (Reuters) – Outflows from emerging market equity funds since the start of this year now exceed those for all of 2013 after investors continued to flee emerging stock and bond funds during the past week, banks said on Friday, citing EPFR Global data.

The Boston-based fund tracker, which releases data late on Thursday to clients, said $6.37 billion had fled emerging equity funds in the week to Feb. 5, while bond funds shed $1.98 billion.

CHINA’S ECONOMY IN FREEFALL: Services PMI Falls to 2nd Lowest on Record


At 50.7, HSBC’s China Services PMI is 0.1 above its previous record low from August 2011. In contrast to the manufacturing side of the economy – which lost jobs at the fastest rate since March 2009 – the services side saw a modest rise in employment but, as HSBC notes, as part of efforts to boost sales, both manufacturers and service providers cut their selling prices in January at the strongest rate of discounting since June 2012. The backlog of work for service providers dropped for the first time since April 2013 and new order growth was the slowest in 7 months.

5 Things To Ponder: Market Correction Over Or Just Starting



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