Thursday, August 13, 2009


Earnings-driven market rally led to resumption of strong inflows

An exceptional summer doldrums — Better-than-expected results have driven global markets up 11% over the last three weeks and reignited foreign interest of buying “growth” Asia. As per the EPFR data, net inflows to offshore Asian funds totaled US$2.7bn this month with 93% coming in the past two weeks. This is the 2nd biggest summer inflows in history after some US$6b recorded in July 07.

The potential buying power of Global funds — Among the three fund groups that have investment in Asian markets, Global funds are the lone ones holding above average cash weights of 3.7%. They are currently 29bp overweight Asia versus some 160bps in Jan 2007. They used to overweight Asia by 220-350bps during 2003-2005 with average cash weights around that time at 3.1%. Comparing these with their current position suggests Global funds could potentially add US$15b to Asian equities if they turn aggressively bullish.

Consensus Asian funds still positioning for a weaker USD — While Asian funds remain largely overweight Diversified Financials and Materials, they have gone 150bp further underweight the Tech sector with Semis still being the least-favored among three. Sector weights in Banks are at a new high of 17%, narrowing the bank underweight to just 106bps compared with 373bps in October 2008. Real Estate is likely to be the source of funding of the move.

To see full report: FUN WITH FLOWS