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India and China news keeps cash rolling into emerging market funds

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Emerging markets equity funds soaked up USD2.46bn during the third week of May as India’s election produced the result investors were hoping for, Chinese officials reiterated their dete

Emerging markets equity funds soaked up USD2.46bn during the third week of May as India’s election produced the result investors were hoping for, Chinese officials reiterated their determination to lift GDP growth and commodity prices rallied, says EPFR Global.

The USD26.3bn that investors pulled from money market funds on 15 May was the third largest daily outflow total this year from these funds, and the third largest since at least the beginning of 2008.

Funds investing mainly in the major developed markets continue to struggle. Combined outflows from Europe, Japan and US equity funds more than offset flows into other equity fund groups. Overall, all equity funds tracked by EPFR Global recorded collective outflows of USD389m while the bond funds absorbed a net USD3bn.

Emerging market equity fund flows Asia ex-Japan equity funds again posted the biggest inflows among the four major emerging markets equity fund groups, in dollar terms, taking in USD933m for the week ending 20 May. Year to date total flows into the Asia ex-Japan funds amount to USD6.9bn. But, with commodity prices on the rise, Latin America equity fnds had the best week in percentage terms as they absorbed USD587m.

Investors also committed USD898m to the diversified global emerging markets (GEM) equity funds, taking 2009 totals to USD10.6bn, and USD41m to EMEA equity funds, which still have seen net outflows for the year of USD988m.

At the country level, funds geared to China posted inflows for the eighth consecutive week. But the USD273m they took in represented a five-week low. Investors shifted some of their focus to markets that supply China with raw materials, committing another USD398m to Brazil equity funds.

Elsewhere, India equity funds had their second best week year-to-date as voters gave the ruling Congress Party-led coalition a fresh mandate while leaving it less beholden to various communist parties. And Taiwan equity funds, benefiting from some encouraging forecasts from high technology companies, extended their current inflow streak to 11 weeks and USD967m.

Since the second week of March EPFR Global-tracked emerging markets equity funds have posted collective inflows of USD21bn.

While emerging markets funds have been attracting some of the cash leaving money market funds, their developed markets counterparts have generally been left out in the cold. Outflows from Japan, Europe and US equity funds over the past 11 weeks now total USD14.1bn. Year-to-date they stand at USD54.4bn.

During the third week of May all three of these fund groups posted outflows, ranging from USD59m for Japan equity funds to USD2.98bn for Europe equity funds. There is, however, some appetite for diversified exposure to developed markets. For the third week in a row the two major diversified fund groups geared primarily to developed markets took in new money, with global equity funds – which have now posted inflows seven of the past eight weeks – taking in USD134m while Pacific equity funds absorbed USD53m.

Actively managed large cap and mid cap US equity funds posted solid inflows, but failed to offset outflows from mid and small cap ETFs. Funds managed for growth outperformed their value counterparts across all capitalizations.

Although well off the record setting pace of the previous week, investors continued to commit money to high yield bond funds during the third week of May. This fund group took in fresh money for the tenth straight week as year-to-date inflows climbed above USD8.7bn. US, global and emerging markets bond funds also extended their winning streaks.

US bond funds absorbed over USD1bn for the 12th time in the past 15 weeks inflows, taking year-to-date inflows close to the USD21bn mark, despite the flood of new debt from corporate, municipal and federal issuers.

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