Yes, it is confirmed. Funds are moving out of emerging market and the results have not been pretty.
After two weeks of punitive sell-out, most of the indices have either gone below the year opening level or expected to move towards that. With the exception of Nikkei 225 and DAX, most of the indices have already gone underwater. With this massive sell-out it is only a matter of time that the DAX and the Nikkei 225 go below the year opening as well. Right now, they are less than 10% shy of the their respective year-open level.
Certainly, with the trading volume and ferocity, it could not have been the act of individuals or retail investors. This is the act of institutional fund managers that are holding large quantities of index-linked blue-chips. These fund houses do not hold just 2 lots of DBS or OCBC, but in much larger quantities like 200,000 shares. The irony is that such selling often breeds more selling as investors want it out. And as redemptions accelerate, fund managers have no choice but to encash their shareholdings in anticipation of more redemptions even though they know that the price of blue-chips have gone to unpredented levels.
Certainly, with the ferocity of the drop in the bid-offer prices, the victims are the investors who have dedicatedly squirreled away their hard-earned savings in these funds for the past years. It is a situation in which the fund house takes the first dollar of profit but investors bear the first risk on the money. Frankly, I had tasted these bitter fruits years ago during Asian financial crisis when I noted that the fund units were trading at one-third the price which I originally bought even though the indices dropped only by 50%. In addition, our yearly management fees of 1-2% paid to them and the undistributed dividends that went into the pockets of the fund managers do not seem to offer much help for the helpless investors who put their money at risks. Learning from the lessons during the Asian financial crisis. I had encashed most of my unit trust funds about 2 months ago in anticipation that the stock market scenes will not be going to be pretty. After all, what is the 5% sales charge compare to an anticipated drop of 30%-50% in stock indices.
(Brennen Pak has been a stock investor for more than 26 years. He is the Principal Trainer of BP Wealth Learning Centre LLP. He is the author of the book “Building Wealth Together Through Stocks.”) – The ebook version may be purchased via www.investingnote.com.