As cash flows to emerging market and dedicated Asia strategies decline sharply, Strategic Insight (SI) estimates that nearly $100 billion of net allocations from U.S. and European investment fund managers benefited from Asia’s stock markets during 2010, but the amount is roughly $90 billion lower this year.
“The dramatic shift in emerging market commitments plays a big role,” said Jag Alexeyev, Head of Global Research at Strategic Insight. “Emerging market mutual funds in U.S. and Europe captured $105 billion of net inflows in 2010, more than half of which was routed to Asia. This year, such funds are attracting just $6 billion.”
Meanwhile, dedicated Asia funds in the U.S. and Europe, which gained $28 billion last year, are dealing with $10 billion of net redemptions so far during 2011.
As allocations to Asia contract, mutual funds within the region are also not providing much liquidity, reflecting the limited recovery of local flows since the global financial crisis, SI said. Funds in Asia today account for just 10% to 12% of worldwide flows to long-term funds, in contrast to nearly 60% in 2007. Moreover, Asia’s current share is mostly accounted for by Japan, and by international offshore funds sold through hubs such as Hong Kong, underscoring the challenges for fund managers across the region.
Changes in investor behavior, regulations, and competition from other financial products are impacting mutual funds in markets such as India, Korea, and Taiwan, as detailed in SI’s report of the industry, “Capturing the Promise: Funds in Asia, and Asia in Funds Worldwide.”Despite the limitations, many firms are growing their business in Asia. Managers of international cross-border funds, primarily UCITS, are getting between 10% and 20% of sales and flows from Asia today, and some leaders are capturing even more. In addition, as financial markets recovered and fund assets grew from capital appreciation, around 400 local Asian fund managers, over 80% of the firms in the region, have benefited from rising assets since the end of 2008.