Policy fears hurt Turkey and China funds in Dec
* Turkey equities funds were four out of bottom five
* Fears of tightening prompted profit taking
* European smaller companies funds among top performers
By Chris Vellacott and Raji Menon
LONDON, Jan 10 (Reuters) - Moves by policymakers to curb the flow of hot money into emerging markets have spooked investors and sent Turkish and Chinese equities funds to the bottom of the performance league during December, Lipper data showed.
Equity funds focused on Turkey suffered the most marked hits to performance during December, accounting for four out of the bottom five funds registered for sale in Britain.
That contrasted with earlier in 2010 when Turkish funds were well represented among the top performers.
One fund, the Magna Turkey A LP60098696 fund was the second-worst performer over the month after declining 4.9 percent, a year after ranking first in December 2009. [ID:nLDE6070M9]
Another, the HSBC GIF Turkey Equity fund LP60101749 was fourth from the bottom having declined 4.3 percent during December, nine months after coming top of the league in March. [ID:nLDE6361J5]
Alex Tarver, investment director at HSBC Global Asset Management blamed the slump on investors taking profits amid fears of monetary tightening after Turkish equities outperformed during much of 2010.
"There is a feeling (Turkish authorities) are going to tighten at the long end in the not too distant future. With things like that knocking about, people have been taking their money away just in case Turkey was in for a slide," he said.
The main Istanbul share index .XU100 ended the year 8 percent off a high reached in late October but still gained nearly 25 percent during the year.
During December, Turkey's monetary authorities raised banks' reserve requirements in an attempt to curb excessive inflows of money fleeing low returns in developed markets.[ID:nLDE6BG011]
Easy-money policies in the developed world have swamped emerging economies with capital searching for higher returns, driving up their currencies.
The resulting inflows have inflated Turkey's current account deficit, threatening an otherwise booming economy, and raising fears authorities will act.
Table of leaders and laggards among UK-registered equity
funds in October [ID:nLDE7091BR]
Table of bond funds [ID:nLDE7091D1]
Table of mixed asset funds [ID:nLDE7091DL]
More from Lipper: www.lipperweb.com
A similar trend and associated fears of tightening led to a similar round of profit taking by investors in Chinese equity funds which also suffered lagging performances during December.
"October and November were pretty strong for China ... So there was an element of any excuse to take profits particularly towards the end of the calendar year," said Philip Ehrmann, manager of Jupiter's (JUP.L) China fund 65054749.
Prominent among the top-ranking equity funds during December were European smaller companies, boosted by the return of assets betting on the recovery on a previously unloved sector.
"Over the last two years, Europe has remained unloved. Everyone has been putting money into emerging markets. But at the end of the last year, there was an element of catch-up for Europe where people have suddenly gone, 'well, that is not so bad,'" said Jim Campbell, co manager of the JP Morgan Smaller Companies fund 60011065 (Reporting by Chris Vellacott; Editing by Dan Lalor)
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