Deep-pocketed institutional funds scaling back emerging markets
By Sujata Rao
LONDON Oct 12 (Reuters) - Big pension, insurance and sovereign funds may be scaling back investments in emerging markets amid disappointing returns and a darkening outlook for the sector.
These deep-pocketed funds -- global pension assets alone are worth over $35 trillion -- are relatively recent entrants to emerging markets, driven by the collapse in Western bond yields and the need for diversification. Because they are focused on the long term, their presence has been a powerful counterweight to skittish retail and hedge fund money.
Such investors have pumped at least $50 billion into emerging stock and bond markets since 2013, according to the world's most closely watched monitor of capital flows to emerging markets, the Institute of International Finance.
But signs of a protracted growth slowdown and the prospect of years of lacklustre returns may be causing some to rethink their strategy.
The IIF -- which predicts the first net capital outflow from the developing world since 1988 this year -- estimates that institutional sellers accounted for 75 percent of the $40 billion that has fled emerging markets since late June. (link.reuters.com/cac85w)
"We are seeing signs the latest outflows are being sourced by institutional investors as well as retail investors," Charles Collyns, the IIF's managing director and chief economist, said recently.
"During the taper tantrum it was retail that headed for the door," he said, referring to the 2013 selloff driven by hints of an end to U.S. money-printing stimulus.
"Now we are seeing signs ... that institutional investors are also capitulating, and that's a bad sign." Continuación...