>FUN WITH FLOWS (CITI)

Cash Weights Have Gone Up But Not High Enough

■ Cash levels at Asian funds rose 90 bps from 3.4% to 4.3% last month — Comparing this with the average of last 15 years, it is 90 bps higher. With the strong technical rebound over the past 3 weeks as well as the resumption of inflows, we believe that Asian funds may have put some money back into stock markets this month, as they did in Dec for the year-end rally. In this regard, current cash weights are likely to stay around the historical average. At the bottom of bear markets, cash tends to be well above average.

■ It's all about China again — China ties Singapore as the most overweight market at Asian funds, the first time ever for China. Global funds have gone neutral on China and their country weight is now at a record high 2%. Meanwhile, GEM funds’ underweight in China has narrowed to the smallest in two years.

■ Early signs of GEM funds narrowing their underweight position in Asia ex — GEM funds are 460-bp underweight Asia versus 540bps in November 2008. The last time GEM funds went overweight this region was in 2003, and it took 13 months for them to move from a 450bp underweight to +35bp overweight.

■ Investors becoming skeptical with regional markets up 23% from March low — In the week ended March 25th, new money going to offshore Asian funds dropped to just US$78m versus US$409m in the week before, according to the EPFR Data. Rotation back towards commodity/material plays seems underway as GEM funds have taken in US$2b, the most in three months.

To see full report: FUN WITH FLOWS