Fund Redemptions - If you remember the rankings of year to date performances of various markets, the emerging markets have been hit pretty hard. Now we know that last week saw fund redemptions from emerging market equity funds totaling US$1.9bn, which was the biggest outflow in 5 weeks. That on top of the 5 weeks of continued outflow of funds. In total the total fund redemptions was almost US$20bn on emerging markets funds.
The situation was reversed for US equity funds where US$13.3bn flowed in over the past 10 weeks. To me, the outflow from emerging was collateral damage from the massive unwinding and deleveraging by speculators, hedge funds and commodity funds. It was not fundamentally driven. As they unwound, the emerging markets were being sold down to cash up for overal anticipated redemptions. The reversal now seen in commodity would establish some platform for emerging markets to find their feet again.
China Post-Olympics' Blues - The generally accepted fact is that China will see a slowdown following the successful Olympics. Many consider the infrastructure development would slow dramatically. Let's get real for a moment. The total investment in infrastructure which was related to the Olympics totaled between US$40bn-50bn. Now, let's take the China's actual budget for its 5 year plan already announced for 2006-2010:
Transportation Infrastructure US$554bn
Power Grid Projects US$1,000bn
Even if you average it over 5 years, that easily US$300bn a year (or 6x the Olympics related budget on infrastructure). This is one of the main reasons why I think the commodities upcycle is far from over... and this is just China. In fact, infrastructure projects would speed up after the Olympics as these projects may have had to take a backseat to allow the Olympics related projects to be rushed for completion.
p/s photos: Yamasaki Kimami
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