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By Tim Seymour

Last week, emerging market equity fund flows were down for the fourth straight week with the largest outflows seen since the August 2011 bloodbath. China (NYSEARCA:FXI) was the big loser as the big winner in total outflow, with 21% of the net flow having 23% of the AUM. Russia (NYSEARCA:RSX), which has been slowly grinding lower all year, was 10% of the flow with 6% of the AUM.

In Latin America, Brazil (NYSEARCA:EWZ) remains the biggest loser with 16 straight weeks of declines. It carries the torch for all investors in terms of disappointing results. Mexico (NYSEARCA:EWW) remains a place where the crowded trade might still be somewhat offset by the heavy presence of local pension funds that keep a bid to the flows side. Colombia (NYSEARCA:GXG) showed its second consecutive outflow and, along with Mexico, is the only one that is positive in the second quarter. Chile (NYSEARCA:ECH) has now had four consecutive weeks of outflows.

Emerging market fixed-income flows have been worse, and this is the area that is punishing the currencies along with the local bond markets. Emerging market debt was lower for the third straight week and had the largest outflow since September 2011. Japanese yen-denominated funds were 42% of the flow -- can you say carry trade? This is the place where you have to wonder whether the breakdown in Japan will be an opportunity to buy, or just the start of more emerging market debt trades. Emerging market debt has been the best trade of the last four years of all asset classes.

The allocations from mega-sized accounts (endowments, public pensions, and central banks) were chunky, and they could reverse beyond what we have seen to this point. From a traders' perspective, however, the negative sentiment I read in all press on emerging markets makes me itchy to buy -- or at least feel like we are getting to a capitulation point.

Source: Emerging Market Fund Flows - Nasty, But Could Be Worse And Might Get Worse