Markets driven by Funds Inflow

EPFR is an organization that tracks the funds, and it’s the Asian Offshore Region where we have seen the flow of money coming in. The important thing is that this rally has been fuelled by fund flows coming from different parts of the world.

Concentrating on the Offshore Asian funds, we think that the last week was the biggest week in terms of inflows in 13 months. The new money which came in this last week doubled to nearly USD 1.6 billion. Asian markets have rallied nearly 44% and in that period we have seen inflows of nearly USD 6 billion as mentioned by EPFR. But to put things into perspective—since when the bear market started in November ’07 till early March’09 the total money which went out from the Asian dedicated funds was nearly USD 25 billion. So nearly 25% of those outflows have come back in these markets in that period when you had that upsurge of nearly 44%. So still the outflow is nearly USD 18 billion negative but we have seen huge money coming in.

The only reason for this huge money coming in is the Chinese Exchange Traded Funds (ETF), which have accounted for nearly 40% of the total Asian funds last week from as low as nearly 5%. So the demand has been coming in the Chinese ETF funds. The important caveat here is that the holding period for most of the Asia ex-India funds have shortened to life time low. 109 days compared to 160 days in June 1997 and 140 days in March 2009. It is also a pertinent point to mention what the currency is because this fund flow has been accentuated by the decline in dollar. Dollar Index has fallen to the lowest level in the last 4 months today and we have seen that the dollar is moving southwards.
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