GRAPHIC-Emerging market funds punished 'fragile 5' before Fed shock

LONDON, Sept 30 Mon Sep 30, 2013 9:05am EDT

LONDON, Sept 30 (Reuters) - Brazil has suffered the sharpest drop in allocations by emerging markets investors as the so-called 'fragile five' developing nations face the prospect of the withdrawal of U.S. Federal Reserve stimulus, data showed on Monday.

It has been expected for some time that the group of emerging economies with high current account gaps, including Brazil, India, Indonesia, South Africa and Turkey, would suffer most in the global shift in capital spurred by the Fed.

The first clear evidence of fund flows from industry research firm Lipper confirmed that funds have cut their average weightings to the 'fragile five' by more than 12 percent since March.

Others, including China, Korea, Taiwan and Hungary have seen average allocations increase, data to the end of August showed.

There are currently no numbers available on changes to weightings since the Fed's surprise decision to hold off on tapering, at least temporarily.

The latest Lipper figures are drawn from a relatively small sample, the August allocations data coming from 180 GEM funds holding a combined $84 billion in assets. That compares to a universe of more than 1,000 funds with assets of $325 billion.

However, the allocations data in this sample tally closely with the findings from Reuters' quarterly look at changing sentiment to emerging equities. This used data from close to 400 GEM funds representing more than half the assets held in the sector.

You can see the more recent data from the smaller sample by clicking here:

You can see the quarterly allocations graphic by clicking here:

The average weighting of Brazil in global emerging markets (GEM) portfolios fell to 10.3 percent as of August, against 11.6 in February/March and 13.4 in the second quarter last year.

Indonesia and Turkey show some of the steepest recent falls, albeit at lower allocation levels than Brazil. Indonesia weightings fell by more than 27 percent between February/March and August, while Turkey's dropped by more than 21 percent.

South Africa's decline appears to have been arrested, steady at just over 5 percent of average global emerging markets portfolios for several months now. But that comes after falling from a more than 7 percent weighting in the second quarter of 2012, according to the Lipper data.

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