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Outflows from EM equity and bond funds gather pace as Fed ‘tapering’ decision looms

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Redemptions from EPFR Global-tracked emerging markets equity and bond funds hit nine week highs heading into September as the prospect of less accommodative US monetary policy pummelled equity indexes and currencies from Jakarta to Istanbul.

 
With the short-term outlook for the US also clouded by looming clashes over federal spending and the debt ceiling, investors again looked to Europe as they adjusted their portfolios: Europe equity funds took in another USD1.3bn as they extended their longest inflow streak since 4Q06.
 
Overall, the week ending August 28 saw a net USD4.8bn pulled out of all equity funds and another USD7.1bn redeemed from bond funds. Net flows into money market funds were a modest USD1.7bn as commitments to US funds were offset by redemptions from Europe and Japan money market funds.
 
The latest outflows from emerging markets equity funds saw a number of country fund groups hit hard. Philippines and Mexico equity funds both set weekly outflow records, Korea equity funds had their second worst week year-to-date and redemptions from Turkey equity funds hit an 11 week high. But higher oil prices trumped regional tensions for investors looking at the Middle East as commitments to Middle East regional equity funds hit a 17 week high.
 
In addition to the prospect of US consumers squeezed by higher interest rates, healthcare costs and taxes, the question of just how strong China’s economic growth really is hung over Emerging Asian export stories – and country fund groups — in late August. China equity funds saw their current outflow streak grow to 16 weeks and USD6.5bn, with renminbi-denominated flows hitting a four week high, and local investors pulled over USD400m out of Korea equity funds. But redemptions from fund groups tied to two markets attracting more than their share of negative headlines, India and Indonesia equity funds, were moderate.
 
With the anticipated start date for “tapering” of QE3 programme barely a month away, EPFR Global-tracked bond funds continued to leak money in late August with every major fund group except floating rate bond funds seeing outflows. Once again emerging markets and US municipal bond funds were the biggest contributors to the overall outflows during a week when redemptions from global and Europe bond funds hit a nine week high. At the country level Spain bond funds continued their surprising run as they extended an inflow streak stretching back to the final week of May. On the other hand Brazil bond funds recorded outflows for the 30th straight week and Australia bond funds for the 27th week in a row. During these runs the former have seen 14 per cent of assets under management redeemed and the latter 17 per cent. 

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