LatinFinance - May/June 2015 - 14
IIF estimates for Latin America portfolio flows ($bn)
Equity portfolio flows
Debt portfolio flows
14 L ATINFINA NCE.COM - May/June 2015
EPFR portfolio flows data for funds investing in Latin America ($m)
Equity fund flows
Bond fund flows
Source: FLICKR By Eduardo Otubo
The cycle turns
In the lead up to the global financial crisis, and the first years
after, emerging markets were investors' shining star, providing
returns unavailable anywhere else. Suddenly, the asset class has
experienced a sharp fall from grace. Today, returns are damned with
faint praise: "If we look at emerging market dollar debt returns from
2000 to the financial crisis, there were 10% per annum returns," says
Sam Finkelstein, head of macro strategies in Goldman Sachs Asset
Management's global fixed income team.
"Those lofty return days are over, but on a relative basis in a fixed
income portfolio we think that emerging markets are okay."
Emerging markets, particularly those that depend on exports
of oil or other commodities, will pose difficulties for yield-hungry
investors until China stabilizes say some.
With the cloud of negativity settled over the region, fund
managers are also grappling with serious portfolio outflows. In
bonds, the trend can be dated to May 2013, according to data from
EPFR Global, which predominantly focuses on retail investor flows.
The market souring began two years ago when Fed chairman
Ben Bernanke suggested the end of asset purchases was in sight,
causing investors to shuffle some of their holdings to the US. Ever
since, international investors have shunned Latin America's debt in
to keep up with the quickly changing signals from the US Federal
Reserve over interest rate increases.
"Latin America has been a significant underperformer in the last
12 months against the rest of the EM asset class," says Steve Ellis,
fixed-income portfolio manager at Fidelity Worldwide. "I'm talking
about hard currency sovereign debt, EMBI Global-type of mandates.
Spreads have widened pretty aggressively in Latin America in the
past 12 months."
Despite the pessimism, most bond funds managed to post oneyear gross returns in the low-single digit range - keeping their heads
above water if not coming close to long-run averages.
Equities fared much worse, though. Even the best performers
suffered double-digit losses (see table, page 15).
Overall, rather than a year for picking winning investments, 2015
could be characterized as one for avoiding figurative banana peels.
Investors pulled $3.69 billion of cash from LatAm debt funds in
2013, according to data from EPFR, abruptly ending several years of
steady, if not spectacular, inflows. Last year, the outflows deepened,
reaching $4.49 billion.
The trend has kept up this year, although at a much slower pace.
From the beginning of the year to April 24, investors had pulled $20
million from LatAm bond funds.
In equities, the volumes have been higher, and withdrawals
"It is an industry-wide phenomena for most asset classes within
emerging markets," says Fiona Manning, senior investment manager
at Aberdeen Asset Management's Global Emerging Market Equities
team. "But Latin America does seem to be particularly hard hit."
JPMorgan Asset Management picked up some market share
as investors departed emerging markets, a fact that has helped
its resilience, says Carrillo. "We were prepared for much worse
outflows than we got. We were looking at 2008, 2009 to see what we
could expect and we definitely did not get that bad."
The question of fund flows is less gloomy, however, if one
considers portfolio flow estimates from the Institute of International
Finance. Its data, derived from country-level portfolio flows as well
as capital markets issuance, risk appetite, and Fed expectations,
offers a bigger-picture view than that of EPFR data.
The IIF estimates more than $9 billion went into Latin American
bond portfolios, and close to $5 billion into equities, in April. Even
the IIF data has a bearish slant, however: the Institute expects that
inflows of capital will slow this year compared to last.
"Our expectation is that the year as a whole, 2015 versus 2014,
will show a decline of private capital inflows because the region as
a whole is growing very little, or probably stagnant," says Ramón
Aracena, chief economist for the Latin America department at the
IIF. "The main driver of portfolio equities is usually growth."
The EPFR numbers, which reflect day-to-day movements in many
portfolios, concern many fund managers. Poor performance in
regional equity markets can in part be attributed to investors being
forced to sell assets at a lower price than they had hoped to cover
Indeed, equity markets across the region have been highly
LatinFinance - May/June 2015
Table of Contents for the Digital Edition of LatinFinance - May/June 2015
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LatinFinance - May/June 2015 - Contents
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