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Post-recession bounce for Europe fund flows

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Flows into EPFR Global tracked Europe bond and equity funds hit six and 66 week highs during the second week of August as initial estimates from Eurostat confirmed the end of a recession that has gripped the European Union and Eurozone since 4Q11.

 
The robust flows into Europe equity funds stood out during a week when many investors were on vacation, literally and figuratively, with most major fund groups recording lacklustre flows either way.
 
Overall, EPFR Global-tracked equity funds recorded net inflows of only USD1.26bn for the week ending August 14 while bond funds saw USD1.38bn redeemed. Money market funds attracted USD6.53bn with US funds accounting for the bulk of those inflows.
 
While investors were reassessing their exposure to Europe they remained cool to the prospects for emerging markets, with emerging markets equity fund flows negative for the eighth time in the past 12 weeks and emerging markets bond funds extending an outflow streak stretching back to late May.
 
Investors looking to Europe again opted mainly for funds offering regional exposure, with combined flows into Europe and Europe ex-UK regional equity funds exceeding USD2bn as retail commitments hit their second highest total YTD. At the country level Italy equity funds posted their biggest weekly total in over a decade despite the fact Italy is one of four Eurozone economies that did not return to growth in 2Q13. One that did, France, continues to be viewed with scepticism: redemptions from France equity funds hit a 10 week high. 
 
At the country level investors continued their pull-back from China and Brazil equity funds. The former’s current outflow streak hit 13 weeks and USD5.1bn while the latter posted outflows for the 24th time in the past 25 weeks. Brazil’s commodities story is taking a battering because of doubts about Chinese demand and both of these emerging markets face tough choices involving growth, inflation and credit quality. Mexico, which is dependent on US demand and has just unveiled proposals to reform state oil monopoly Pemex, has seen investor interest surge again in recent week. Mexico equity funds took in another USD228m during the week ending August 14 as year-to-date inflows pushed past the USD1.5bn mark.
 
Recent data pointing to decent US job growth, the end of the Eurozone recession and a resilient Chinese economy suggested to some investors that demand for energy, commodities and goods may not be as flat in the coming months as many feared. During the week ending August 14 flows into EPFR Global-tracked energy sector funds jumped to a six week high as they took in fresh money for the ninth time in the past 11 weeks while commodities sector funds posted inflows for only the second time since early February. The net flows into commodities sector funds came despite another week of outflows from gold funds. The redemptions, however, added up to only USD52m and were partially offset by the seventh consecutive week of inflows for silver funds.
 
With the consensus still leaning towards some ‘tapering’ of QE3 during the fourth quarter, EPFR Global-tracked bond funds continued to leak money in mid-August with emerging markets and US municipal bond funds accounting for the bulk of the latest redemptions. Floating rate funds remain popular, with net flows into this fund group so far this year now north of USD45bn, and balanced funds – which invest in both equities and bonds – absorbed fresh money for the 31st time in the 32 weeks YTD. 

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