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Investors dip into equity funds ahead of key policy meetings in September

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Flows into EPFR Global-tracked China equity funds jumped to a 32 week high during the final week of August.



High yield bond and gold funds both took in over USD1bn, floating rate bond funds posted their biggest inflow since mid-April and volatility funds attracted fresh money for the fourth straight week.

Bond funds collectively took in USD5.3bn during the week ending August 29, lifting year-to-date inflows over the USD270bn mark, while equity funds absorbed USD2.1bn and their first weekly inflow in four weeks.

Money market funds recorded modest net outflows as commitments to US money market funds were more than offset by redemptions from their European counterparts.

"Expectations of more quantitative easing will be put to the test by a string of key policy meetings and decisions in September," says EPFR Global managing director Brad Durham. "With volatility so low and recent portfolio gains to protect, investors have been buying volatility funds in recent weeks amounting to about USD1bn of inflows. The bets are paying off as the VIX gapped higher during the last two weeks of August."

EPFR Global-tracked emerging market equity funds absorbed fresh money for the fifth week running in late August, their longest inflow streak since the first quarter, with Asia ex-Japan equity funds absorbing the majority of the new money for the first time since mid-February as Chinese officials talked up plans to boost spending on industrial development, infrastructure and energy conservation.

Although it is not yet clear how, or at what pace, these investment programmes will be funded, investors committed USD500m to China equity funds during the week ending August 29. They also steered the most money into Korea equity funds since the final week of October 2007, as they pencilled in more opportunities for Korean exporters. But redemptions from India equity funds hit a six week high as the country’s central bank continues to focus on inflation despite slowing growth.

Latin America equity funds were the only major EM fund group to experience net redemptions as investors pulled money from both Mexico and Brazil equity funds. Investors have been slow to respond to assertions by Brazilian policymakers that a combination currency devaluation, tax cuts and lower interest rates will push growth back over four per cent next year.
 

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