BlackRock chairman says global capital will flow back to US

PUBLISHED : Wednesday, 05 June, 2013, 5:06pm
UPDATED : Thursday, 06 June, 2013, 2:39am

Capital will flow from emerging markets back to the United States on the back of an economic recovery in the world's biggest economy, according to the regional boss of American asset manager BlackRock.

That would reverse the trend since the financial crisis of massive amounts of capital flowing into the region, said Mark McCombe.

"We are beginning to see the shift from emerging markets into the US basket," said the chairman of the Asia-Pacific arm of the world's biggest asset manager.

McCombe said he expected high volatility in some markets in the region.

"The strength of the US recovery is causing a [portfolio] rebalancing, as there does seem to be a continued optimism about the pace of the pickup in the US economy," he said.

The region's mutual funds and exchange-traded funds just saw a net weekly outflow following 36 straight weeks of net capital injections, as both active and passive investors turned net sellers, according to a Jefferies report.

China, which used to attract the attention of global investors, would be the place foreign investors shy away from in this capital flight, because of corporate governance problems and the retail-dominated investor base of the equity market, McCombe said.

"I don't think investors have confidence yet in the domestic markets of China," he added.

McCombe said speculative gains could be made in the market but that there was a limited number of good firms with long-term value.

Shares in the mainland, which already have the cheapest valuation of any major share market, were not as attractive as those in mature markets, he said.

A total of US$1.4 billion was withdrawn from mutual fund and ETFs in the region during the seven days to Wednesday.

MSCI Asia Pacific, excluding Japan, lost 3.5 per cent over the past two weeks, while Hong Kong's Hang Seng Index fell 5 per cent.

As of the end of last month, Beijing had approved US$42.56 billion through the qualified foreign institutional investor scheme.

The scheme allows foreign institutions to invest in the mainland's bond and equity markets.