SkyBridge Sees Up to $50 Billion More in Emerging Outflows

Feb 14, 2014 9:21 am ET

(Updates market prices in fifth paragraph.)

Feb. 14 (Bloomberg) -- Anthony Scaramucci’s SkyBridge Capital says the rout in emerging-market assets will deepen, pitting the firm against calls by BlackRock Inc. and Templeton Asset Management that shares are cheap and will lure buyers.

Developing-nation assets are set to lose another $25 billion to $50 billion in net outflows over the next year, said Troy Gayeski, a partner and senior portfolio manager at SkyBridge. While SkyBridge has been considering investing in emerging markets since the third quarter of 2012, the firm hasn’t found prices attractive enough yet, he said.

“Every time we look at it, it’s just too early,” Gayeski, who oversees $6.4 billion at SkyBridge, said in a telephone interview from New York on Feb. 12. The firm last held developing-nation assets in 2010, he said. “You have to wait for the cycle to play out.”

Emerging-market exchange traded funds in the U.S. had about $100 million of outflows since the MSCI Emerging Markets Index reached this year’s low on Feb. 5, while foreigners pulled $892 million from bourses in South Korea, India and Brazil, data compiled by Bloomberg show. BlackRock’s Larry Fink and Templeton Asset Management’s Mark Mobius are among managers of more than $7.7 trillion who say the rout is making share prices look attractive.

‘Papered Over’

The MSCI Emerging Markets Index tumbled 8.6 percent this year through its low on Feb. 5 as developing-nation stock funds tracked by EPFR Global and Morgan Stanley recorded more than $15 billion of withdrawals. Shares sank as Chinese manufacturing indexes dropped, central banks from India to Turkey raised interest rates to support their currencies and the Federal Reserve pushed ahead with plans to reduce stimulus. The gauge gained 1 percent to 955.32 at 9:19 a.m. in New York.

The Fed’s stimulus partly “papered over” the reality of emerging markets, which will keep sliding longer than they should after having outperformed for years, Gayeski said.

SkyBridge, which invests in hedge funds and was founded in 2005 by Scaramucci, produced returns of 14 percent last year, correctly forecasting that stocks would climb.

BlackRock’s Fink, whose firm is the world’s largest money manager with $4.3 trillion, said developing-nation equities are attractive because of low valuations relative to the countries’ potential growth rates. He spoke in an interview with Charlie Rose that aired on PBS on Feb. 11. Mobius, who oversees more than $50 billion, said on Bloomberg Radio the same day that the selloff is approaching its end.

The selloff in the MSCI Emerging Markets Index dragged the index’s valuation to less than 9 times projected 12-month earnings on Feb. 4, the cheapest since August and compared with a multiple of 14 for the MSCI World Index of developed-country equities.

--Editors: Tal Barak Harif, Rita Nazareth