>FUNDS FLOW AFTER MARCH (CITI)

■ Three major changes in country preferences — First, China has gone from one of the most overweight markets in February to 25bp underweight. Second, the underweight in Taiwan has narrowed by 100bps to the smallest in thirteen months. Third, Indonesia has moved from Neutral to Top-2 most overweight markets at Asian funds. Historically once the consensus moves a country from neutral to Top-2 it outperforms the region by 1000bps in the next six months.

■ Asian funds no longer hold a defensive portfolio — Asian funds’ overweight in Consumers has fallen from 516bps in October 2008 to the current 195bps. Telecom has now become a consensus underweight (previously the biggest overweight when markets tumbled). Asian funds are now moderately underweight Technology compared with a 430bp underweight at the 2007 market peak.

■ GEM funds the potential source of additional liquidity — With the resumption of strong inflows to Asian funds since the first week of March, yet cash weights remain at 2.9%, they are fully invested in our view. GEM funds, by contrast, see cash levels at 3.7%. With GEM funds still largely underweight Asia, and taking in more new money than Asian funds (65% more this week), by the time they unwind their position it could provide further liquidity to the region.

■ Inflows to Asian funds decrease for the second week to 2-month low — In particular, China fund inflows drop to US$19m vs. US$484m/week in the previous month.

To see full report: FUN WITH FLOWS