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Emerging markets funds remain under pressure, says EPFR Global


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Flows into and out of EPFR Global-tracked funds during the week ending 19 June suggest that investors expected the outcome of the US Federal Reserve’s latest meeting to be relatively benign.

 
Redemptions from bond funds were half the previous week’s total while equity funds posted inflows thanks to US, Japan and Europe equity funds. But investors continued their recent exodus from emerging markets fund groups, with redemptions from emerging markets bond funds hitting a 90 week high and over USD3bn flowing out of emerging markets equity funds.
 
“The Dow’s 354 point drop the day after Fed chair Ben Bernanke statement indicates investors did not get what they were looking for from the US central bank,” says EPFR Global research director Cameron Brandt. “With today the second of the year’s four ‘triple witchings’ and China’s banking system getting fresh scrutiny, we think there is a good chance of big swings in fund flows during the coming week.”
 
Overall, equity funds took in a net USD4.81bn during the third week of June, with dividend equity funds snapping a two week outflow streak, while redemptions from bond funds totalled USD7.48bn. Over USD25bn was pulled out of money market funds, the most since the third week of February.
 
At the country level Japan equity funds posted inflows for the 21st straight week and funds dedicated to Japan’s export peers, Germany and Korea, also attracted fresh money. But China equity funds extended their losing run as a report from ratings agency Fitch raised new questions about China’s shadow banking system and China bond funds saw an inflow streak stretching back to early 4Q12 come to an end.
 
While investors are distancing themselves from most of the top tier emerging markets such as China, Brazil, Russia and South Africa, they have retained their appetite for the smaller, riskier, faster growing ones. Frontier markets equity funds have now taken in fresh money every week since mid-March and have attracted over USD2.5bn year-to-date.
 
Flows into Japan equity funds ticked up from the levels of the previous three weeks, with retail investors returning for the first time since late May, helped by new data showing the benefit the current monetary policy has provided for Japanese exporters. These funds have now pulled in fresh money for 22 straight weeks, their longest run since a 27 week streak ended in 1Q06.
 
Real estate sector funds are now the second worst performers YTD after commodities sector funds among the 11 major groups tracked by EPFR Global. The top three so far this year in performance terms are healthcare/biotechnology, consumer goods and industrial sector funds.
 
The outflows from emerging market bond funds were the highest since late 3Q11 and claimed China bond funds’ lengthy inflow streak as funds with local currency mandates had their worst week in over 20 months. Emerging markets corporate bond funds posted consecutive weekly outflows for the first time since late 2Q12.

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