Investors pulled a record US$9.2 billion from emerging-market equity funds this past week as rising global borrowing costs and MSCI’s decision to delay adding China’s yuan-denominated shares in its indexes weighed on investor sentiment, according to Barclays and EPFR Global.
Although foreign investors sold off Qatar stocks last week, Dubai’s market managed to buck the trend, enjoying a net increase in investment by non-Arab investors.
Overall, funds posted $9.2bn of outflows in the seven days through Wednesday, $6.8bn of which was from those investing in China, said Barclays, citing data from the market researcher EPFR.
Traders have pulled $26bn from emerging-market funds this year, surpassing last year’s total of $24bn, the data showed.
The MSCI Emerging Markets Index declined 12 days in a row through June 9, the longest losing streak since 1990, amid concerns that rising borrowing costs in Germany and the United States will lure capital away from developing countries.
MSCI said on Tuesday that it would work with Chinese regulators to sort out some issues about market access before adding local shares to its emerging-market benchmark, disappointing some investors looking for an immediate inclusion.
“We are cautious about the asset class,” said Morgan Harting, a senior portfolio manager at AllianceBernstein Holding.
“The focus is on the rise of global rates. Investors are re-pricing risky assets.
“There are certainly reasons to be sceptical to a broader emerging-market rally, although they are cheap.”
UAE stocks, which were included in the MSCI Emerging Markets Index in May last year, fared somewhat better than the index as a whole.
Although shares in Abu Dhabi ended the week down 0.7 per cent, Dubai’s headline index rose 1 per cent over the same period, despite ending sharply down in trading on Thursday.
The Emerging Markets Index dipped 0.3 per cent last week. It is down 5.1 per cent for the past month, but is up 2.4 per cent for the year to date.
Net foreign investment in Dubai-listed stocks was Dh220m for the week, buttressed by a net investment of Dh304.3m by non-Arab investors.
There was an outflow of Dh8.4m of foreign investment in the previous week.
However, Qatar, included in the MSCI Emerging Markets Index from the same date as the UAE, was not so fortunate. Its stock index closed down 1.8 per cent on the week, accompanied by an increase in selling activities by foreign investors.
But the investment bank EFG-Hermes noted that Dubai's stock market had until recently moved in line with the MSCI Emerging Market Index, and that a downward correction was possible.
"The DFM has moved with EM equities this year, but has uncoupled in recent weeks," wrote the bank on Thursday. "UAE stocks may be due for a pullback."
Investors also withdrew $500m from emerging-market foreign-currency bond funds and $320m from local-currency funds during the week, according to Barclays.
Global government bonds tumbled over the past few weeks, dampening demand for higher-yielding assets, on concern that the economic recovery may push up inflation.
* Agencies, with additional reporting by John Everington
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