Russia’s Capital Outflow Hits US$203 Million

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May 18 – After three months of unbroken inflow, investors have started taking out capital from Russia and CIS country-oriented funds. According to fund tracker EPFR Global, capital outflow has reached US$203 million in the region, compared to losses of US$332 million in China, US$247 million in Brazil, US$189 million in India, and US$351 million in Europe, the Middle East and Africa (EMEA).

From the beginning of this year, the net-inflow to Russian funds amounted to US$1.88 million, while the volume under their management has reached US$11.3 million. The outflow has interrupted the third longest period of inflow since 2005, when funds replenished continuously within 12 weeks, Uralsib analyst Vyacheslav Smoljaninov said to Vedomosti.

General outflow from developing market funds amounted to US$2.1 billion, which is 10 times bigger than a week ago.

“Not only funds turn out cash,” said Renaissance Capital strategist Ovanes Oganesjan. “Many clients concluded that markets are experiencing a bumpy time, so they decided to take the good profit they already have.”

The current outflow is the worst showing since June 2008. The last comparable time with current outflow was observed in Russia in November 2009, when investors deducted US$243 million from the country’s funds.

Russian oriented funds are missing about 1.8 percent of their under management assets, the worst result so far. China and India are only 0.7 missing percent each, Brazilian funds 1.3 percent, and EMEA funds 0.9 percent according to comments made by Alfa Bank analysts.

Oganesjan believes that a bigger risk is inherent to the Russian economy compared to other large emerging markets. “We’ve always run ahead of a steam locomotive,” he said. “To articulate, we fall and we grow faster then the others.”

Instead of a more customary period of sales, which usually happens from the middle to the end of May, sales this year began in April and Oganisjan believes that the 2005 scenario, when purchases began in the end of May, is possible. “It is very critical for purchases to start before the beginning of August, when fundamentally bad news from Europe’s economy might follow,” he said.

The outflow did not come as a surprise to market participants. Investors worldwide have started to reconsider risks in these times of high volatility and turbulence in the markets, says analyst Vyacheslav Smoljaninov. On a positive note, the analyst also remarked, “We believe that Russia is a fundamentally attractive market and we expect that the economy will be given new investment as soon as volatility decreases.”