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Started by : Esha Johar, Risk Analyst, Irevna   07 22 2010 10:30:12 +0000
Industry : Equity Research/AnalyticsFunctional Area : Equities(Markets)
Activity:  15 views;  last activity : 07 26 2010 18:57:41 +0000

Are portfolio flows to emerging market the result of the “pull” factor—the attraction of rapid growth in these markets—or is it the “push” given by unpleasant conditions in the West? That’s a question that has been debated since the 1990s, when capital flows to emerging markets first started to perk up.

http://propertybytes.indiaproperty.com/Images/Nov06/Foreign%20invst.jpg

It is all the more important now, when the developed countries are yet to recover from the shock of the financial crisis while emerging economies are seeing robust growth. Unfortunately, as is the case in most questions in economics, researchers often come up with diametrically opposite conclusions.

So users, what do you think determines the flow of fund in the emerging markets?

 
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1 Global liquidity

Global liquidity

idea posted by Esha Johar Risk Analyst, Irevna

A 10% decline in global liquidity is associated with a 2% decline in the equity returns of what IMF called the liquidity in the emerging markets. The corollary that follows is the mantra of all emerging market bulls: with growth prospects uncertain in the advanced economies amid renewed fears of the dreaded double-dip, their central banks will ensure that liquidity remains abundant, which in turn drives flows to emerging markets.

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International institutional investors maintain a back office or risk analysts. They track risks of their portfolio held in local markets and international markets. They have some risk targets, and they move funds through international markets to maintain the particular risk targets. For examle if XYZ fund manager has invested in local market and they are in some return band then at that point the risk status might have overshot their targeted risk levels. To minimize the risk and bring it to target levels the treasurer advise the particular manager to sell of his certain amount of postion and allocate it to some other market where the risk level is different bringing their overall risk levels to expected target. These institutional investors are not only mutual funds but others too like pension funds of muncipals of US like NY City, corporate pension funds of companies like Amoco pension fund &.C.

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by puneet , Manager Admin  | 07 25 2010 13:51:08 +0000

nice.

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