Emerging markets assets end week on positive note; outflows reported again for EM funds

By Christine Van Dusen

Atlanta, Dec. 23 - The tone remained positive for emerging markets assets on Friday, even with slow activity and thin volumes as the bond markets closed early and issuers and investors headed out for the Christmas holiday and year-end.

The holiday break wasn't the only mood-booster; there was good economic news from the United States, which showed a decline in weekly jobless claims and better consumer sentiment for December.

That gave risk assets a bit of a kick in the pants, a source said.

At the same time, investors remain concerned about the European debt crisis, given that no full resolution has been reached. Those concerns will carry into 2012, said Nick Chamie, head of emerging markets research for RBC Capital Markets.

"It will take time for the volatility to dissipate, if we even get a reasonable solution out of Europe," he said. "The economic data will continue to deteriorate and risk aversion will remain high, and appetite to take up new issues in the market will remain relatively diminished. So we expect that 2012 will not start with a big bang, in terms of new issues."

The economic picture won't be the only thing that slows issuance at the start of the year, he said.

"There's a large amount of pent-up demand to bring new issues to the market on the part of United States and European issuers. Most of them have been locked out of the market for weeks and months," he said. "So EM could be crowded out of the market for quite some time."

Bond funds see outflows

In other news on Friday, emerging markets bond funds saw outflows again, according to a report from data tracker EPFR Global.

"The penultimate week of 2011 saw investors taking up defensive positions for the holidays," the report said. "Redemptions from local currency emerging markets bond funds jumped to a 12-week high and investors pulled money out of global bond funds for the 12th time in the past 14 weeks."

The outflows totaled $599 million for the week ending Dec. 21, driven by redemptions from local currency funds.

"Emerging markets borrowers are also being subjected to tougher scrutiny going into the New Year," the report said. "EPFR Global-tracked local currency bond funds gained more than 1% for the week, a development that triggered over $800 million worth of redemptions."

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