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Flows into emerging markets bond funds set weekly record

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Year-to-date inflows into emerging markets bond funds moved over the USD5bn mark on the back of their biggest weekly inflow in over a decade during the week ending 10 March, according to research by EPFR Global.

US and global bond funds extended their current inflow streaks to 62 and 47 straight weeks respectively, while high yield bond funds took in over USD1bn.

Elsewhere, flows into emerging markets equity funds hit an eight week high, Japan equity funds extended their longest winning streak in over three years and global equity funds absorbed another USD1.2bn as global equity markets continued to rebound from their earlier correction.

Greece’s fiscal crisis continued to exert a drag on some fund groups, with Europe equity funds posting outflows for the seventh time in eight weeks and financial sector funds recording the biggest net redemptions among the nine major sector fund groups.

Overall, EPFR Global-tracked bond funds took in another USD6.51bn, taking collective YTD inflows up to USD47.7bn, while their equity counterparts absorbed a net USD2.74bn.

Emerging markets continued to rally in early March, with flows into EPFR Global-tracked emerging markets equity funds beginning to reflect the increased optimism about the prospects for commodity prices and exports. All four of the major fund groups posted inflows during the week ending 10 March. Asia ex-Japan equity funds had their best week since late November and YTD flows into EMEA equity funds pushed over the USD1bn mark.

EMEA equity funds benefited from a 27th consecutive week of flows into Africa regional funds and from renewed interest in Russia which, in addition to its energy and commodities story, is beginning to attract interest as a disinflation play. Flows into Russia equity funds hit a 20-week high, more than offsetting the biggest weekly redemptions from emerging Europe equity funds since 2Q09 and a sixth straight week of net redemptions from Turkey equity funds.

Another BRICs market, China, enjoyed a better week as the country’s latest export numbers drew the spotlight away from its recent tightening of monetary policy. China equity funds posted inflows for only the second time YTD, absorbing a modest USD31m. BRIC equity funds posted inflows for the fourth consecutive week.  

For the fourth week in a row Europe equity funds were the only major developed markets fund group tracked by EPFR Global to post outflows. Overall, the five developed markets fund groups have posted net outflows of USD8.01bn YTD, a big improvement over the USD55.6bn they collectively surrendered through the first ten weeks of 2009.

Europe equity funds remain under pressure as investors fret that the increased fiscal discipline being demanded of the region to prevent further Greek-style fiscal crises will further stifle already lacklustre growth in the region. Outflows for the week ending 10 March totalled USD502m. Regional funds whose mandate includes the UK and UK equity funds did, however, record modest inflows.

Faith in the strength of the current cyclical recovery and the willingness of Japanese policymakers to keep running an ultra-loose monetary policy – thereby keeping the yen competitive for exporters – kept the money flowing into Japan equity funds during early March. This fund group has now taken in fresh money for 11 consecutive weeks, their best run since a 12-week streak ended in mid-2Q06.

Flows into US equity funds were positive for a fourth straight week, their longest winning streak since 3Q08, as fresh money committed to large and mid cap funds offset net redemptions from small cap funds. Outflows among the small cap funds were confined to those with growth and blend styles, with small cap value funds having their best week in over two years.

Global equity funds continued their strong start to the year, taking in fresh money for the eighth time in ten weeks as YTD inflows moved within striking distance of the USD7bn mark. Pacific equity funds, the other major diversified fund group that invests primarily to developed markets, recorded inflows for the fourth week running.

Consumer goods sector funds entered mid-March as the biggest money magnets among the nine major sector fund groups tracked by EPFR Global, having absorbed a net USD1.76bn, while last year’s leader, commodity sector funds, remained in the red despite a second consecutive week of inflows.

Financial sector funds stumbled amidst concerns about the exposure of major insurers to Chile’s earthquake, the news that US banks are under pressure to retain cash rather than return it to shareholders and fresh talk about a global financial transaction tax. Investors took USD364m out of these funds, taking YTD outflows just shy of USD2bn.

Despite oil prices north of USD80 a barrel, energy sector funds also slipped into negative territory YTD during the week as investors removed another USD113m. But technology sector funds sustained their recent surge, taking in USD179m, and healthcare/biotechnology sector funds absorbed USD247m as fears of a biotech bubble receded.

Investors continued to stuff EPFR Global-tracked bond funds in early March despite fears about the creditworthiness of Spain and other developed world economies, signs of inflationary pressures in China and the surge worldwide in public sector borrowing.

High yield and emerging markets bond funds both took in over USD1bn, their best showing since EPFR Global started tracking these fund groups weekly, as expectations of lower default rates, the hunger for yield and the prospect of a resolution for Dubai World’s debt woes helped to push the spread between US Treasuries and JP Morgan’s benchmark EMBI+ index to a 20-month low.

US bond funds, meanwhile, absorbed over USD2bn for the seventh time in the past nine weeks and global bond funds saw YTD inflows pass the USD17bn mark. Nearly half of the new money taken in by US bond funds again went to funds investing in short term debt, with intermediate and municipal bond funds accounting for another 40 per cent of the total inflows.

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