>Fun With Flows (CITI)

The Lack of Capitulation Suggests That Bear Market Is Not Over....

■ This is a bear market rebound — According to EPFR Global, foreign investors have regained risk appetite and plowed in US$502m of new money into Asian equity funds over the past two weeks as equity prices rebounded. In January 1998, when MXASJ had fallen by half from the July 1997 peak, flows also turned positive amid a bear market rally. Sadly, those who got in suffered from a 30% loss when markets made their final low on the 1st of September.

■ Await signs of capitulation to mark the end of the current bear market — In the last four months of 1998, when Asian markets advanced 50% from the low, hardly any investor believed that equity prices had bottomed and redemptions from Asian funds persisted in three out of four months. In our view, the divergence between fund flows and market performance is an indication of the beginning of a bull run. And this is not the case at the moment.

■ Inflows still concentrated in China funds — Of the total net inflows to Asian funds last week, 50% were taken in by A50 ETF and 43% by other China funds. Greater China regional funds (geo focus on China, Hong Kong and Taiwan equities) also reported strong inflows for the second week, but that was offset by continuous outflows from Asia ex Japan regional funds, Korea and Singapore country funds.

■ Redemptions from Global equity funds ongoing — The good news is that outflows dropped to just US$210m last week, down 90% compared with the average in previous three weeks. GEM fund outflows resumed nevertheless.

To see full report: FUN WITH FLOWS