Merrill Lynch: First net fund inflow to China stock market in 8 weeks

In the week from 13 to 19 November, redeem of funds in the emerging markets are still ongoing, reaching a value of about 838 million USD. According to Merrill Lynch latest liquidity report, according to regions, accept for Asia which show a net fund inflow, Latin America, emerging economies, Africa and Middle East show a net outflow of funds. According to countries, China has shown a first net fund inflow in 8 weeks.

MSCI emerging market index has dropped to a 4 year low. S&P500 has dropped to a 11 year low. Comparing to the highest point in the past, global stock market value has evaporated over 35 trillion USD, which is equivalent to what US consumers spent in total from 2004 to 2007.

On the redemption wave, due to pressures to raise funds and risk aversion, investors tend to hold cash. The report believes that investors with enough liquidity are waiting for 3 things to happen. 1) Low fluctuations and low rate differences. 2) Global economic figures to stop worsening. 3) EPS showing a big drop. The nearest time these 3 things happening at the same time could be in February 2009. Other than that, observations should also be on credit spreads, inventory data and China stock market movements. Through credit spreads, it can be known whether are there any loosening in credit tightening. Inventory data tend to show whether is it the end for economic movement inertia. From the movements of the China stock market, it can be known whether the current China economic stimulus policies are taking effect.

The report suggests that stocks able to resist deflation can be the main investing target such as Brazil's water and electrical utilities, China and India's daily necessities, most fixed line telecommunications equipments needed by most countries, etc.