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Emerging market mark 14 weeks of net inflow – EPFR

Posted on: June 14, 2009


Reuters – Saturday, June 13

By Daniel Bases

NEW YORK, June 12 – Emerging market equity funds pulled in a net $3.39 billion cash in the week to June 10, marking 14 straight weeks of inflows and helping cement a view that risk appetite remains intact, data from EPFR Global showed.

This is the best performing equity sector so far this year, bringing in a net $29.4 billion.

In a further sign of higher risk tolerance, money market mutual funds had net outflows of $11.3 billion, according to EPFR Global data released late Thursday.

“In light of money market funds’ heavy U.S. Treasury holdings, this investor move off the sidelines and back into risk likely explains a large part of the U.S. Treasury retracement,” David Spegel, global head of emerging markets strategy at ING, said in a note to clients.

Benchmark 10-year U.S. Treasury yields rose by 40 basis points between June 3 and June 10 <US10YT=RR>.

Money market funds serve as a holding area for investors who are unsure of where to put their money. So far this year they have pulled $104 billion out of these funds.

U.S. mutual funds took in a net $3.255 billion, whereas western Europe had net outflows of $868.1 million. During this period the benchmark American Standard & Poor’s 500 stock index <.SPX> rose 0.79 percent while the FTSEurofirst 300 <.FTEU3> index of top European companies rose 1.37 percent.

“There is a pretty well established pattern here of three straight months of flows into emerging markets,” said Cameron Brandt, global market analyst at EPFR Global in Boston.

In emerging markets, Asia ex-Japan took in $1.658 billion while Latin American funds took in $265.5 million.

Investors however shunned Mexico for a third consecutive week, pulling a net $7.4 million out in the latest period.

A drop in U.S. demand is causing an overall contraction in Mexico’s economy. Its credit rating is also coming into question for possible downgrades.

But in Asia, Chinese-focused mutual funds took in a net $404.8 million in the latest week, representing a 40 percent increase over the prior week.

Pacific funds took in a net $178.4 million but Japanese-focused funds had net outflows of $124.727 million. Investors have pulled cash out of Japan for four consecutive weeks.

Sector funds were among some of the big winners in the latest week, but EPFR’s Brandt says there should be some caution taken when looking in this direction.

“The flows into the sector funds have a more speculative quality to them,” Brandt said.

“Flows into real estate, technology and even energy have tended to be bouncing one way or another and have a high exchange traded funds component, so I would be wary of flows in any given week,” he said.

Real estate funds took in $487 million, commodities and materials funds had net inflows of $298 million while energy and technology had inflows of $212.9 and $214.5 million, respectively.

Traditional defensive funds such as healthcare/biotechnology had net outflows of $159 million. Financials had net redemptions worth $185.7 million.

FIXED INCOME

Emerging market debt funds took in a net $102.7 million. U.S.-dollar-denominated funds had net inflows of $104 million while local currency funds had net outflows of $32 million.

This was counterbalanced a net $30.7 million inflow into blended funds.

U.S. bond funds took in a net $1.987 billion while higher risk assets such as high-yield bond funds had net inflows of $754.3 million.

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