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Money Market and US Equity Funds benefit from events in China and Europe

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Over USD11 billion flowed into EPFR Global-tracked US Equity Funds and more than USD45 billion into Money Market Funds during the first week of July as mutual fund investors looked for safe vantage points as events in Greece and China play out. 

Preliminary numbers based on combined daily and intraday data, which has a more than 85 per cent correlation with the weekly numbers that will appear later today, for the week ending July 8 indicated that Equity Funds are collectively on track to post their biggest weekly inflow since 4Q14 – as are Money Market Funds – while Bond Funds will extend their current outflow streak to five straight weeks.

Although China's equity markets continued to lurch lower during the week flows into China Equity Funds are on course to post their second consecutive weekly record. "Over 80 per cent of recent flows have gone to a handful of domestically domiciled ETFs, which suggest that these commitments reflect official efforts to support Chinese equities," observed EPFR Global Research Director Cameron Brandt (pictured). Europe Equity Funds, meanwhile, continue to attract fresh money as investors take comfort from the European Central Bank's quantitative easing (QE) program and the durable, if fraying, consensus that the current chapter in the Greek debt crisis will end with another short-to-medium term deal.

At the country and asset class levels flows into Taiwan Equity Funds, which had been exceptionally strong the previous two weeks, tailed off but Japan Equity Funds continue to enjoy robust inflows. The pace of redemptions from High Yield Bond Funds moderated in early July, flows into Energy Sector Funds rebounded and Inflation Protected Bond Funds look set to post their biggest inflow since early May.

Between events in Greece and the slumping Chinese equity market, emerging markets investors had plenty of reasons for caution in early July. While the headline number for EPFR Global-tracked Emerging Markets Equity Funds overall looks set to hit levels last seen 11 months ago, this is mostly due to the big inflows recorded by a handful of China Equity ETFs. The diversified Global Emerging Markets (GEM) Equity Funds are on track to post back-to-back weekly outflows in excess of USD1 billion for the first time since mid-March and EMEA Equity Funds to extend an outflow streak stretching back to early May.

While reminbi-denominated flows into China ETFs have surged over the past two weeks foreign retail investors, who steadily committed fresh money to China Equity Funds between mid-April and mid-June, have started to pull back. Regulators in China recently moved to limit the sale of big blocks of shares and suspended trading of numerous stocks. The slump in Chinese equities has yet to push investors into other regional markets. India Equity Funds are on track to post outflows for the third time in the past five weeks and most fund groups dedicated to smaller markets are experiencing redemptions. These include Thailand Equity Funds, which snapped a two month outflow streak the previous week, and Philippines Equity Funds whose solid start to the year has been more than canceled out by the current nine week run of outflows.

Flows into Latin America Equity Funds were positive for the second time in three weeks despite the gloomy outlook for inflation and growth in the region's biggest economy, Brazil. Investors again committed modest amounts of fresh money to Brazil Equity Funds in anticipation of better economic policymaking and a pick-up in IPOs during the second half of the year.

It was another lackluster week for EMEA Equity Funds as investors remained focused on the possibility of a broad Greek default and the country's exit from the Eurozone. Hungary Equity Funds remain the best performing EMEA Country Fund group year-to-date.

The first week off 3Q15 saw EPFR Global-tracked Developed Markets Equity Funds record their second biggest inflow YTD as US Equity Funds benefited from 'safe haven' flows and investors continued to back markets underpinned by major QE programs.

This faith in QE helped Europe Equity Funds ride out the shockwaves following Greece's decisive vote against further austerity in the July 5 referendum on a previous offer by the country's creditors. Around a third of the week's inflows did go to UK Equity Funds, although commitments to that fund group fell off sharply the day Chancellor of the Exchequer George Osborne presented a budget seen as decidedly mixed for UK businesses. 

Yen-denominated flows were again the biggest source of fresh money for Japan Equity Funds, with foreign flows showing some signs of rolling over after a lengthy run of inflows that started in mid-1Q15. The pause by foreign investors is tied to concerns that Prime Minister Shinzo Abe's focus has shifted from economic reforms to the strategic challenges posed by China's more aggressive stance over maritime claims. Recent machinery orders do suggest that Japanese companies are stepping up their capital spending.

US Equity Funds , meanwhile, look set to snap a 27 week run of retail redemptions as overall flows into the fund group hit a 16 week high. Large Cap ETFs accounted for the biggest share of the week's inflows.

Flows into Energy and Financial Sector Funds climbed to 14 and 30 week highs respectively during the week ending July 8 ahead of the first reports in the 2Q15 corporate earnings season. Among the 11 major Global Sector Funds tracked by EPFR Global, Consumer Goods, Healthcare/Biotechnology, Utilities and Commodities Sector Funds also recorded fair to good inflows for the week while Technology Sector Funds experienced the biggest redemptions.

Although the bulk of the week's inflows were absorbed by a single US-domiciled ETFs, some 75 per cent of Financial Sector Funds reported positive or neutral flows. Among US firms, financials are expected to deliver one of the better earnings stories along with the Healthcare. Consumer Goods and Telecoms sectors.

Earnings forecasts for the Energy sector, however, are generally grim thanks to lower oil prices, debt burdens and the prospect of more supply pressure if sanctions on Iran are lifted later this year. A string of cuts in full-year GDP forecasts for countries ranging from the US to Brazil are also generating headwinds for both Energy and Industrial Sector Funds, although the former saw a jump in commitments during early July.

The dollar's strength will also be an issue for this and future earnings seasons, something that prompted mutual fund investors to pull back from Technology Sector Funds and snap their longest inflow streak since 1Q14.

EPFR Global-tracked Bond Funds look set to chalk up their fifth consecutive week of outflows as redemptions from Global, Europe and Asia Pacific Bond Funds narrowly offset commitments to US and Emerging Markets Bond Funds. At the asset class level investors continue to pull out of High Yield and Municipal Bond Funds and show a much diminished appetite for funds with multi-asset mandates. Speculation that a hike in US interest rates may not happen until the FOMC's final meeting of the year did boost flows into Inflation Protected Bond Funds.

Although Europe Bond Funds are set to post a sixth consecutive week of outflows, the pace of those redemptions is well down from their peak in mid-June. Daily data shows that the exodus by retail investors is also slowing. At the country level, however, investors continue to favour funds tied to non-euro markets: Norway, Switzerland and UK Bond Funds attracted solid inflows that only Germany Bond Funds came close to matching.

Among the Emerging Markets Bond Funds those with hard currency mandates attracted the bulk of the fresh money. Thailand Bond Funds stood out among the EM Country Bond Fund groups, absorbing over USD400 million. Since the beginning of June this fund group has topped the list in both flows and performance terms as some investors rotate out of previously insured deposit accounts into Thai bonds.

US Bond Funds saw modest flows into Intermediate and Short Term Government Funds that were partially offset by redemptions from US High Yield, Total Return and Municipal Bond Funds.

A spike in investor appetite for Convertible Bond Funds which started in February continues to ebb. These funds recently posted their biggest daily outflow since mid-1Q13 and are on course for a fifth straight week of net redemptions.

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