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Passive investors dump emerging markets stocks, exacerbating falls
- In China, ETF funds outflows came to US$780 million vs non-ETF outflows of US$0.59 billion last week
- ETFs in Asia topped US$293 billion by January
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Passive investors are dumping emerging-markets stocks, including China’s, exacerbating the recent fall in prices, said analysts.
They have sold US$15.3 billion worth of emerging-markets shares so far this year, much more than active investors, who have offloaded US$9 billion, according to funds tracker EPFR.
Passive investors theoretically buy and hold stocks no matter what the direction of markets, accepting average returns. However, fund flows data shows that they tend to crack under pressure, and many end up buying high and selling low.
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A popular tool used by passive investors is index-tracking exchange-traded funds (ETFs), which are baskets of stocks. Index-tracking ETFs allow big money managers, such as pension funds and insurance companies, to switch in and out of markets quickly, on a large scale and at a cheaper cost than calling stock brokers.
The S&P 500 Index plummeted 12 per cent on Monday, the most since 1987, to 30 per cent below its all-time high. Meanwhile Hong Kong’s Hang Seng Index fell into its first bear market since 2015 on Friday.
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