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Rebound in global markets and better data slow to stem rotation from equity to bond funds

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Risk aversion continued to hold sway during the third week of October, with EPFR Global-tracked equity funds extending their longest outflow streak since Q412 and bond funds taking in over USD6 billion for the fourth week running.

Behind the headline numbers, however, investors showed some appetite for income producing asset classes and markets that may qualify as oversold. Flows into Germany and dividend equity funds hit 10 and 32 week highs respectively while high yield bond funds posted inflows for the first time since late August.
 
Some of the concerns that have driven recent outflows began to ease as the week progressed. Better than expected purchasing manager index numbers for Germany and Japan, China reporting still respectable 7.3 per cent GDP growth and some good 3Q14 earnings numbers for US companies took the edge off fears about global economic growth. There was little news, good or bad, concerning the Ukraine and the attritional struggle around the Syrian town of Kobani has absorbed a growing share of the Islamic State’s attention and resources.
 
Overall, equity funds saw a net USD8.66 billion flow out during the week ending 22 October as retail investors extended a redemption streak stretching back to early April. Alternative funds recorded their sixth consecutive weekly outflow, bond funds collectively absorbed USD10.59 billion, with US and Europe bond funds accounting for the bulk of those inflows, and money market funds took in USD19.75 billion.
 
At the country level funds dedicated to German, Australian, Taiwanese and UK equity and German, Swedish and Chinese bonds proved popular. Japan equity funds recorded their second largest inflow year-to-date thanks to a handful of domestically domiciled ETFs.

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