Emerging-Market Funds Lose Record $48.3 Billion

By Chen Shiyin

Jan. 7 (Bloomberg) -- Emerging-market equity investors withdrew a record $48.3 billion from their funds in 2008 as the global financial crisis and economic recession hurt demand for riskier assets, according to data from EPFR Global.

Outflows last year were pared after a rebound in stock prices last month attracted $1.6 billion to emerging-market equity funds in December, according to Cambridge, Massachusetts- based EPFR.

The MSCI Emerging Markets Index, which tracks 746 companies in developing nations, climbed 7.6 percent in December, the first gain in seven months. The advance pared the measure’s loss in 2008 to 56 percent, compared with a 38 percent decline in the Standard & Poor’s 500 index.

“The question for 2009 is whether credit markets will continue to thaw and whether all of the fiscal stimulus to come and the expectation of a recovery in economic activity later this year will be enough to coax some of the cash back into equity and bond exposure,” Brad Durham, EPFR’s managing director, said in the statement.

Asian stocks rose today, trailing gains in the U.S. yesterday, on speculation President-elect Barack Obama’s $775 billion package of tax cuts and government spending will revive the economy. Central banks from China to India have cut interest rates to boost economic growth after financial services companies incurred more than $1 trillion in credit losses and writedowns linked to the U.S. subprime market.

‘Decoupling Theme’

Asian stocks and exchange-traded funds posted $25.7 billion in outflows, making up more than half of the withdrawals from emerging-market equity portfolios last year, EPFR said. The region drew $20.4 billion in 2007 while funds investing in the U.S., Japan and Western Europe lost $101 billion.

“The decoupling theme that took hold in the last quarter of 2007, of investors moving money from developed market funds and putting it into emerging market funds, came to an abrupt halt in early in 2008,” Durham added. “As the fear and panic in global markets deepened, investors took from most equity and bond funds and stuck it in cash or cash equivalents.”

To contact the reporter on this story: Chen Shiyin in Singapore at schen37@bloomberg.net.