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India funds lost $1 bn in 3 weeks

June 15, 2006 10:18 IST
India funds have seen almost $1 billion of outflows in the last three weeks, says Brad Durham, MD, EPFR.

He says that JPMorgan, HSBC and DWS India Funds have seen sizeable outflows.  He further says that emerging market funds have seen an outflow of $1.5 billion in the last week.

Excerpts from CNBC-TV18's exclusive interview with Brad Durham:

Is it getting worst because Taiwan and Korea seem to be taking quite a bit of an outflow but what is the overall emerging market flow picture?

The last three weeks have been pretty harsh. Based on recent history and the collective emerging market equity funds that we track, funds have had about $8.5 billion of net outflows; these are funds with about $250 billion in total assets.

If one is looking at some bright side of the picture, I think the fact that the strength of the outflows in the most recent week had reduced from previous weeks, it is maybe an indication of some stabilising, but most of all of fund groups that are conduits of flows for India have been hit pretty hard. The India funds we track have lost about a billion dollars in outflows in the last three weeks.

Which funds in specific took the hardest hit for India?

Amongst the India country funds, mainly in the JP Morgan India Fund, all the share classes have seen significant outflows. The HSBC India Fund, which is one of the bigger ones, along with the DWS Asset Management managed India fund also had sizeable outflows.

According to your report, a large part of your outflows were due to redemptions from single fund, which fund would that be?

That is the Russia country fund called the Hermitage Russia Fund. It is about $4 billion fund. The reason why the flows were significantly strong out of that fund was that the fund manager is currently not on good terms with the Russian government. He is detained in London and is not able to get a visa to get back into Russia.

Another reason is that the fund is open for quarterly subscriptions. Redemptions and some of the selling pressure built up was realised in a single week.

Is there a strong outflow situation in other developed markets as in emerging markets or are you seeing the flow getting stemmed at some end of this curve?

Outflows out of the emerging market funds are strong. But the US funds that we track, actually the large cap funds, in most recent week had significant inflows.

Japan funds have fairly stabilised and fairly moderate outflows have been seen in the last week or two. The same is true for Europe funds. But significant outflows have been from emerging markets.

If one looks at the global sector funds that we track, energy funds particularly have been in favour with investors recently.

If you track the two classes of funds and have any anecdotal evidence of  

a)      What you are seeing across emerging markets  from the hedge fund fraternity and the BRIC funds?

b)      Whether there you have seen some kind of growing outflows in the last one week?

BRIC funds recently saw inflows, which was somewhat surprising. In the outflows seen in the last two-three week period, these emerging market funds have lost $8.5 billion, while the BRIC funds have only lost about $500 million, which is not that significant.

In the geographically oriented hedge funds that we track, outflows have not been any more distinct than some of the long only funds that we track.

Anecdotally, hedge funds maybe doing some significant de-leveraging right now, given the global liquidity tightening up and interest rate hikes across the globe.

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