May 31, 2018 / 11:57 PM / a year ago

UPDATE 1-U.S. fund investors pull most from emerging stocks since 2016

 (Adds quotes, details on funds, table, byline)
    By Trevor Hunnicutt
    NEW YORK, May 31 (Reuters) - U.S. fund investors are
starting to show doubt about emerging markets, pulling the most
cash in more than 18 months from stocks in those regions,
according to Lipper data on Thursday.
    Nearly $1.2 billion left emerging market stock mutual funds
and exchange-traded funds during the seven days through May 30,
according to the research service. That is the largest
withdrawal since November 2016.
    Emerging markets face a host of challenges, including the
rising U.S. dollar that makes debt denominated in the currency
more expensive to repay, rising rates due to Federal Reserve
policy in the United States, higher oil prices and the potential
for a trade war.
    Canada and Mexico retaliated against the United States'
decision on Thursday to impose tariffs on steel and aluminum
imports and the European Union had its own reprisals ready to
    The Trump administration has also demanded that China make
concessions for allegedly stealing U.S. technology by imposing
tariffs on $50 billion of imports from that country. U.S.
Commerce Secretary Wilbur Ross heads to Beijing on Friday where
he will attempt to get deals to export more U.S. goods.
    "The challenges for emerging markets have been multiplying,"
an analyst for the Institute of International Finance wrote in a
note on Thursday that highlighted a possible risk of "contagion"
spreading from countries already facing currency devaluations,
such as Turkey and Argentina, to other regions that have gulped
down large foreign investments in recent years.
    An MSCI index that tracks 25 emerging market
currencies against the U.S. dollar is more than 3 percent off
record highs earlier this year. A comparable index that tracks
the stocks in those markets is down more than 11
percent from its highs this year in January.
    Fed Governor Lael Brainard said in a speech on Thursday that
emerging markets may face "more challenging" conditions.

    "An environment with a strengthening dollar, rising energy
prices, and the possibility of rising rates raises the risks of
capital flow reversals in some emerging markets that have seen
increased borrowing from abroad," she said.
    "Although stresses have been contained to a few vulnerable
countries so far, the risk of a broader pullback bears
    The following is a breakdown of the flows for the week,
including mutual funds and ETFs:
 Sector                    Flow Chg  % Assets  Assets     Count
                           ($blns)             ($blns)    
 All Equity Funds          4.874     0.07      7,432.745  12,296
 Domestic Equities         5.165     0.10      5,173.028  8,755
 Non-Domestic Equities     -0.291    -0.01     2,259.717  3,541
 All Taxable Bond Funds    0.158     0.01      2,781.739  6,064
 All Money Market Funds    9.363     0.35      2,703.007  1,043
 All Municipal Bond Funds  0.077     0.02      429.260    1,480
 (Reporting by Trevor Hunnicutt
Editing by Cynthia Osterman and Chris Reese)
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