Savvy Participants Pulling Money Out Of Stocks

Savvy Participants Pulling Money Out Of Stocks

$DIA, $SPY, $QQQ, $VXX

Savvy international stock market participants  have pulled$40-B out of developing economies in Q-3, ankling emerging markets at the fastest pace since the height of the global financial crisis in Y 2008.

The Quarterly outflow was the 1st since Y 2009 and the biggest since Q-4 of Y 2008, when traders sold $105-B of assets, according to the Institute of International Finance (IFF).

The money retreat comes as data signaled faltering Chinese economic growth, commodity prices slumped and the US Fed moved closer to an increase in the Zero+ fed funds interest rates that have supported participants’ demand for riskier assets in the US and developing nations.

About $19-B of the selloff was equities, with the remaining $21-B in debt, the IIF said in a report Tuesday. There were outflows in all 3 months this Quarter.

A recovery around the Fed’s meeting this month, when policy makers decided to hold off on their 1st borrowing-cost increase since Y 2006, provided only a short-lived boost to particpant flows, with outflows resuming and dipping back into negative territory in the week of 21 September, according to the IIF.  Concern about the timing of a Fed liftoff have probably added to recent market volatility, further weighing on emerging- markets flows, and participant sentiment the industry group said.

Corporate debt of non-financial firms in emerging markets rose to more than $18-T in Y 2014 from $4-T in Y 2004, the International Monetary Fund said in a study released Tuesday.

“The upward trend in recent years naturally raises concerns because many emerging-market financial crises have been preceded by rapid leverage growth,” the authors including wrote, which is part of a larger report to be released next month.

For much of the past 15 years, easy credit from the Fed and a strong Chinese economy combined to drive investment dollars into emerging markets and drive growth. Now, the withdrawal of loose monetary policies pose a Key risk for the emerging market corporate sector if the flow of participants’ capital reverses, according to the Washington-based lender.

“Emerging markets should be prepared for corporate distress and sporadic failures in the wake of monetary policy normalization in advanced economies, and where needed and feasible, should reform insolvency regimes,” the IMF report said.

DJIA +47.24 at 16049.13, NAS 100 -26.65 at 4517.32, S&P 500 +2.32 at 1884.09

Volume: Trade was ahead of average with more than 980-M/shares changing hands on the NYSE.

• NAS 100 -4.6% YTD
• S&P 500 -8.5% YTD
• DJIA -10.0% YTD
• Russell 2000 -10.1% YTD

The CBOE Volatility Index (VIX) 26.54, -1.09 back into the middle of Tuesday’s range.

Stay tuned…

HeffX-LTN

Paul Ebeling

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