Russia equity funds post surprise inflows

Russin-dollsThe fall in the value of the Russian stock market following the country's incursion into the Crimea may have been seen as a buying opportunity, according to fund flow data.

In the first week of March, Russian equity funds had their highest weekly net inflow this year, according to data provider EPFR Global.

“Although Russia was central to the Ukraine crisis, daily data showed that investors saw the aggressive sell off March 3 as an over-reaction,” says the firm.

Emerging market assets continue to suffer, though – perhaps in response to the crisis in Ukraine. Outflows from emerging market equity funds tracked by EPFR Global accelerated in the week.

Meanwhile, financial markets have responded quickly to the Ukraine crisis. Analytics firm S&P Capital IQ notes that over 30 days, the credit default swap (CDS) spread for Russia widened 13 basis points and for Ukraine widened 58 basis points. CDS are a form of insurance on government debt; a wide spread indicates a high probability of default.

Some investors say the chance of a global escalation of the current conflict in Ukraine is unlikely, however.

“Factors tempering Russia’s behaviour in Ukraine have been the big decline in the ruble and the Russian stock market since the conflict began to escalate, a confirmation that Russia is subject to international pressures,” says Mark Mobius, fund manager, Templeton Emerging Markets Investment Trust.

“Russia needs to attract foreign capital and the Ukraine situation will likely impact flows, so their actions will likely need to be measured, in our view.”

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