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Emerging markets and high yield bond funds enjoy another solid week

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Investors continued committing fresh money to emerging markets equity funds during the third week of April, extending their collective inflow streak to seven straight weeks, according t

Investors continued committing fresh money to emerging markets equity funds during the third week of April, extending their collective inflow streak to seven straight weeks, according to EPFR Global.

Commodity prices rallied and China’s demand for imports was reflected in the trade figures of Korea, Taiwan and other emerging markets.

EPFR Global-tracked balanced, high yield and US bond, global equity and technology sector funds also extended their recent inflow streaks while equity funds geared to developed markets struggled as the first quarter earnings season gathered steam.

Emerging markets funds, with Asia ex-Japan and the diversified global emerging markets (GEM) equity funds to the fore, accounted for the lion’s share of the net USD1.86bn absorbed by all equity funds.

On the fixed income side, emerging markets bond funds posted their first two week winning streak since early August as non-money market fixed income funds took in a net USD2.44bn.

Money market funds posted outflows of USD6.1bn, the sixth time in seven weeks investors have pulled money out of this fund group, while US bond funds took in more than USD1bn for the third straight week.

During the week ending April 22 EPFR Global-tracked GEM equity funds took in a net USD1.08bn, taking year-to-date inflows over the USD7bn mark, while Asia ex-Japan Equity Funds absorbed a 17-week high of USD946m. Latin America equity funds posted inflows of USD174m while EMEA equity funds recorded a very modest outflow.

China was again a major factor behind emerging markets flows. China, Taiwan and Hong Kong equity funds took in USD340m, USD104m and USD70m respectively as measures to stimulate Chinese domestic demand showed signs of taking hold. Russia and Brazil country funds also posted solid inflows as China built up its stockpiles of some key commodities.

Overall, emerging markets equity funds have now taken in USD9.4bn year-to-date while those geared to developed markets have posted collective outflows of USD60.3bn.

Flows into Japan equity funds veered back into the red during the third week of April as the optimism generated by the announcement of an USD154bn stimulus plan earlier this month faded in the face of data showing exports down over 40 per cent year-on-year, unemployment rising and wages falling.

European data was equally gloomy, with Germany expected to see GDP growth decline as much six per cent this year, unemployment in the UK hitting its highest level since 1997 and Italian industrial production falling over 20 per cent year-on-year in February. EPFR Global-tracked Europe equity funds recorded outflows of USD780m, with two-thirds of that total attributable to Germany-dedicated funds.

Flows into US equity funds were increasingly driven by the 1Q09 earnings season. With expectations set low, the positive surprises allowed this fund group to post modest inflows with small and mid-cap funds leading the way and offsetting sizable outflows from large cap blend exchange-traded funds. Actively managed funds recorded net inflows across all capitalizations and funds managed for growth outperformed their value counterparts.

For the fifth week running the two major diversified fund groups geared primarily to developed markets both recorded inflows. Global equity funds absorbed USD228m and Pacific equity funds USD48m.

For the second week running all of the EPFR Global-tracked bond fund groups took in fresh money. High yield bond funds recorded inflows for the sixth straight week, pushing year-to-date inflows over USD6bn, with increased risk appetite encouraging investors to seek the higher returns offered by this asset class. US bond funds extended their winning streak to 16 consecutive weeks and global bond funds posted back-to-back weeks of inflows for the first time since the first week of 2008.

Emerging markets bond funds also recorded inflows for a second straight week, the first time they have done so in over eight months, as the spread between US Treasuries and JP Morgan’s benchmark EMBI+ index remained around 560 basis points. This week solid inflows into funds geared to hard currency debt were nearly offset by redemptions from local currency funds.

Balanced funds carried a 31 week, USD24bn outflow streak into mid-March, posted inflows for the fifth time in six weeks. Investors committed USD454m to these funds, which invest in both equities and fixed income assets.

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