India funds most hit in global credit turmoil: Citigroup

India funds most hit in global credit turmoil: Citigroup

New Delhi: India-focussed funds have seen the biggest outflow of $262 million in the Asia-Pacific region during the past couple of weeks, even as net redemption from all offshore Asian funds was low compared to the equity market meltdown earlier in March this year and May-June 2006.

The offshore country funds are those in which residents of foreign countries park their money and those funds in turn invest in stocks with exposure to the target countries -- thus giving the investors an indirect exposure to these market.

Net outflows from all offshore Asian funds were just $74 million in past two weeks when the markets were in turmoil -- $73.5 million in the first week of August followed by just $0.1 million in the second week, according to global brokerage house Citigroup.

When unwinding of yen carry trade hit Asian equities in March 2007, huge redemption of $4.5 billion was seen in three weeks, while outflow amid May-June market correction last year was $4.9 billion over a six-week period.

The current market fall has caught investors by surprise and they have yet to react, Citigroup analyst Elaine Chu wrote in a research note. “We would not be surprised to see more redemptions when Asian markets rebound in response to the Fed’s discount rate cut last Friday," Chu said.

Money was withdrawn the most from India country funds, followed by China funds ($200 million) and Singapore funds ($159 million).

In the week ended August 15 also, India registered the biggest outflow at $122.6 dollars, followed by $51.3 million in Malaysia and $36.8 million in China.

However, for the past one month and year-to-date periods, outflow from China funds were higher than India.

China-focussed funds saw highest outflow of $496.1 million in the four-week period and $3.6 billion so far in 2007, followed by $265.5 million and $1.96 billion respectively from India funds.

In the first seven and half months of 2006, China had seen the highest inflow of $3.7 billion, followed by $1.4 billion to India funds.

South Korea and Hong Kong equity funds were the only two categories reporting consecutive weeks of inflows month-to-date while outflows from Taiwan funds earlier were short-lived.

Citigroup said, however, that foreign investors were net sellers in the Korea market KSE reported net sell by all foreigners at $3.5 billion in the two weeks ended August 15, with anecdotic evidence suggesting that hedge funds were the major sellers.

Local institutions and individuals, however, supported the market, driving Korea’s benchmark Kospi index to outperform the broader Asia-Pacific, excluding Japan, markets.

Foreign interest in Indonesian stocks remains intact despite the country’s benchmark JCI index being the worst performer in Asia so far in August, while overseas investors continued to sell to local investors in India, the Philippines, Taiwan and Thailand.

India’s benchmark index had lost more than 1,350 points since the beginning of this month, before a recovery witnessed on the bourses on 20 August. FIIs have sold shares worth a net of more than $1.3 billion (Rs5,400 crore) so far this month, while domestic mutual funds have been net buyers of shares worth about $200 million (Rs811 crore).