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Emerging market funds benefit as risk appetite resurfaces

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Flows into EPFR Global-tracked emerging markets equity funds hit a ten-week high during the second week of June as a string of fair-to-good macroeconomic data drew the spotlight away from the sovereign credit issues that have bedevilled global markets since early May.

Over USD37bn flowed out of money market funds during the week, highlighting the desire of investors to put their money to work, although much of that money ended cup in short-term vehicles such as exchange-traded funds.

Among the signs of revived risk appetite were the first weekly inflows for high yield bond funds since the first week of May, the USD659m committed to emerging markets bond funds, the snapping of Japan equity funds five-week outflow streak and the sharp rebound in flows into global equity funds.

While Europe and Latin America equity funds and a majority of the major global sector funds did post outflows for the week, the amounts were generally modest – especially in comparison to the outflows seen towards the end of the previous month.

Overall, bond funds attracted a net USD3.19bn for the week ending 16 June while equity funds posted inflows of USD15.39bn. The tally for equity funds included USD10.8bn committed to a single US ETF.

Waning risk aversion in mid-June was reflected in a sharp deceleration of flows into EPFR Global-tracked commodity sector funds. Investors committed USD159m to this fund group which, during the preceding eight weeks, had taken in a net USD10.07bn. That still left it as one of only two major sector fund groups to post inflows during the week, the other being telecom sector funds.

Among the fund groups seeing the biggest outflows were financial sector funds, whose outlook has been clouded by the prospect of fresh regulations and the stress-testing of European banks, and technology sector funds which surrendered a net USD400m during a week marked by headset bellwether Nokia’s dour forecast.

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