Emerging market and bond funds still on a roll

Jun 22, 2009

Money market funds continue to record huge outflows. In Asia, India equity funds lead the way in net inflows.

Money market funds continue to suffer, with $55 billion in net outflows during the week ending June 17, the biggest weekly outflow from this fund group since EPFR Global started tracking them. On the flipside, emerging markets, commodities and bond funds continued to attract fresh cash despite the lack of any fresh incentive to buy on the macroeconomic front. Policy initiatives, the debate about China's growth prospects and a sharp but temporary drop in risk appetite also shaped fund flows in mid-June, according to EPFR Global, which tracks more than $10 trillion in assets globally.

Overall, EPFR Global-tracked equity funds posted net inflows of $508 million for the week ending June 17 as flows into emerging markets and global equity funds offset modest outflows from US, Japan and Europe equity funds. Net inflows into fixed income funds, excluding money market funds, totalled $3.1 billion.

"While quarterly tax payments in the US and the arbitrage opportunities presented by the rebalancing of major index funds exaggerated this week's outflows from money market funds, the overall flow data was in keeping with the pattern in effect since mid-March," says Massachusetts-based EPFR Global senior analyst Cameron Brandt. "Cash continues moving off the sidelines in search of higher returns and a degree of protection against anticipated dollar weakness."

Monthly data for May shows that emerging market equity funds absorbed a net $17 billion, two-thirds of the year-to-date inflows through the end of that month, while bond funds collectively took in $21 billion and money market funds surrendered a net $27 billion.

Flows into emerging market equity funds moderated in mid-June on the back of disappointing US economic data, a warning from the International Monetary Fund (IMF) that a swift global recovery cannot be expected, and Chinese officials talking down their country's growth prospects.

All four of the major fund groups in emerging markets posted net inflows in the week ending June 17, though, ranging from $693 million for Asia ex-Japan equity funds to $113 million for Europe, Middle East, and Africa (EMEA) equity funds. EPFR Global-tracked emerging market equity funds have now taken in fresh money for 15 straight weeks, their best showing since an 18-week run that ended in the first quarter of 2006.

With questions being asked about the composition of Chinese growth, funds investing in India were the biggest contributors to Asia ex-Japan equity fund flows during the week ending June 17. India equity funds absorbed a net $156 million, despite posting negative performance numbers for the first time in eight weeks, compared to $24 million for China equity funds.

Elsewhere, Russia equity funds posted inflows for the 14th straight week and Brazil Equity Funds took in $133 million as the Bric theme (Brazil, Russia, India and China) continued to play well with investors. Emerging Europe equity funds, which kicked off the year with a 13-week losing run, posted their seventh straight week of inflows.