Mutual Fund Investment in Emerging Markets : An Overview
International mutual funds are one of the main channels for capital flows to emerging economies. Although mutual funds have become important contributors to financial market integration, little is known about their investment allocation, and strate...
| Main Authors: | , , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2001/01/891729/mutual-fund-investment-emerging-markets-overview http://hdl.handle.net/10986/18336 |
| Summary: | International mutual funds are one of
the main channels for capital flows to emerging economies.
Although mutual funds have become important contributors to
financial market integration, little is known about their
investment allocation, and strategies. The authors provide
an overview of mutual fund activity in emerging markets.
First, they describe international mutual funds'
relative size, asset allocation, and country allocation.
Second, they focus on fund behavior during crises, by
analyzing data at the level of both investors, and fund
managers. Among their findings: Equity investment in
emerging markets has grown rapidly in the 1990s, much of it
flowing through mutual funds. Collectively, these funds hold
a sizable share of market capitalization in emerging
economies. Asian, and Latin American funds achieved the
fastest growth, but are smaller than domestic U.S. funds and
world funds. When investigating abroad, U.S. mutual funds
invest more in equity than in bonds. World funds invest
mainly in developed nations (Canada, Europe, Japan, and the
United States). Ten percent of their investment is in Asia,
and Latin America. Mutual funds usually invest in a few
countries within each region. Mutual fund investment was
very responsive to the crises of the 1990s. Withdrawals from
emerging markets during recent crises were large, which
squares with existing evidence of financial contagion.
Investments in Asian, and Latin American mutual funds are
volatile. Because redemptions, and injections are large,
relative to total funds under management, fund's flows
are not stable. The cash held by managers during injections,
and redemptions does not fluctuate significantly, so
investors' actions are typically reflected in emerging
market inflows, and outflows. |
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