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Europe and emerging markets fund flows keep heading in opposite direction

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The second week of November saw EPFR Global-tracked emerging markets equity funds post their biggest outflow since late June.

Investors pulled money out of emerging markets bond funds for the 24th time in the past 25 weeks as stronger than expected 3Q13 GDP numbers from the US rekindled fears that tapering of the Federal Reserve’s current quantitative easing programme could begin early next year.

Although testimony by Janet Yellen, the nominee to succeed Ben Bernanke as head of the Federal Reserve, bolstered earlier assumptions that QE3 will continue unchanged for some time it was another lacklustre week – in both flows and performance terms – for most fund groups. Overall, EPFR Global-tracked equity funds recorded a collective net inflow of USD196m during the week ending 13 November versus net outflows of USD1.18bn from all bond funds and USD2.9bn from money market funds.
 
Europe money market funds accounted for the bulk of the money market fund redemptions as investors continue to put money back to work in the region’s equity and bond markets. Europe bond funds posted their biggest weekly inflow since early May and Europe regional equity funds enjoyed another solid week.
 
Elsewhere, Chinese domestic investors responded positively to the policies outlined in the wake of the Chinese Communist Party Central Committee’s 3rd plenary session: renminbi-denominated flows into China equity funds hit their second highest weekly level year-to-date.
 
Flows into EPFR Global-tracked developed markets equity funds rebounded during the second week of November as Europe equity funds extended their record setting inflow streak and US equity funds attracted modest amounts of fresh money. Flows into Japan equity funds slipped to their lowest level in 10 weeks as the latest GDP data shows export growth and private consumption slowing while hoped for increases in private business investment and wages have yet to materialise. 
 
Emerging markets bond funds recorded outflows for the 24th time in the past 25 weeks, with net redemptions hitting an 11 week high, as both hard and local currency EM Funds saw over USD700m flow out. Colombia bond funds again attracted fresh money and emerging Europe regional funds had their best week since mid-January. But redemptions from Russia bond funds jumped to a record high and Brazil bond funds extended their lengthy outflow streak.
 
Although overall sentiment towards Europe remained bullish, collective flows into Europe equity funds fell to their lowest level since the last week of July as robust commitments to regional and UK country funds were largely offset by another week of big redemptions from Germany equity funds. Investors have pulled over USD5bn out of these funds since early September as the wait for a new coalition government stretches into its seventh week and the country’s current, export-driven model comes under increasing scrutiny. 

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