HONG KONG (Reuters) - Mutual funds investing in Asia suffered their biggest blow since 2008 in the third quarter as investors dumped relatively riskier emerging market assets on the European debt crisis and fear of an economic slowdown.
Many large money managers were badly bruised as the sell-off in August and September hurt asset prices across the region, with selling in the stock markets continuing in October, dashing hopes of any reprieve.
In the July-September period, according to data from fund tracker Lipper, funds which manage about $170 billion in Asia outside Japan had a 14.2 percent drop on average in net asset values.
The losses erased an estimated $30 billion from their combined assets, with all asset classes except money market funds posting negative returns.
Asia ex-Japan stock funds lost 17 percent on an average, losing $28 billion in the quarter with funds such as JPMorgan Asia Equity Fund , Investec GSF Asian Equity and Fidelity Emerging Asia seeing the biggest decline among those managing more than $1 billion.
The worst performance since last quarter of 2008, when the global financial system nearly ground to a halt, has raised fears of the kind of redemptions seen three years ago. At that time, investors pulled out about $18 billion from Asia Ex-Japan equity funds.
“Investors’ tendency to sell low and buy high has been very persistent and I would expect flows to be negative in the current quarter,” said Sunny Ng, director of fund research at Morningstar Asia.
“There may also be a degree of forced selling from institutional investors as they scramble for liquidity.”
Asia ex-Japan equity funds, the biggest regional stock fund category tracked by Lipper, suffered outflows worth $5.7 billion in the first eight months of 2011, with a net $1.8 billion pulled out in August alone.
September data is not available yet.
Nearly one-fourth of the equity funds also underperformed the 21.5 percent drop in the MSCI Asia Ex-Japan Index during the September quarter.
The underperforming is marginally more than 2008 fourth quarter but a majority avoided a steeper decline than the benchmark as they had raised cash allocation and bets on defensive sectors such as consumer staples and healthcare.
Equity funds that focus on China and Hong Kong underperformed their MSCI benchmarks by the biggest margins, according to data from Morningstar, as the negative outlook on the Chinese real estate market and poor performance by Asian financials hit portfolios.
“Active management tends to get punished during periods of widespread economic and market uncertainty, when portfolio managers de-risk and re-position their portfolios to be closer to the benchmark,” Ng said.
Asian hedge funds also recorded their worst quarterly performance in three years as measured by the Eurekahedge Asia Index, losing about 7 percent in three months ended Sept. 30.
Hedge funds tend to lose less given their ability to short sell and make money in falling as well as rising markets.
Editing by Richard Borsuk