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Record-setting quarter for emerging market equity fund inflows

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Fund flows resumed the pattern that has dominated the second quarter in late June as investors pulled another USD37bn out of money market funds and channeled some of that cash into emer

Fund flows resumed the pattern that has dominated the second quarter in late June as investors pulled another USD37bn out of money market funds and channeled some of that cash into emerging market equity funds, US equity funds, high yield bond funds and balanced funds.

Overall, EPFR Global-tracked equity funds posted outflows of USD2.8bn for the week ending 1 July while bond funds absorbed a net USD3.55bn.

EPFR Global’s weekly data shows that during the second quarter, USD137.5bn flowed out of money market funds and another USD7.6bn out of US, Europe and Japan equity funds.

Meanwhile, the combined emerging market equity funds collectively absorbed USD26.5bn, US bond funds USD20.2bn, high yield bond funds USD7.7bn and other fixed income fund groups USD8.4bn.

The flows into emerging market equity funds eclipsed the previous record for a single quarter, the USD22.4bn absorbed in 4Q07.

Commodity and energy sector and Pacific equity funds saw their inflow streaks snapped going into July but global bond funds and emerging market bond funds and balanced funds extended their 12 to 13 week winning streaks.

Thanks to April and May inflows into global bond funds that were the strongest monthly inflows in this fund group since EPFR Global began tracking them in 2000, these funds finished the quarter with net inflows of more than USD4bn.

EPFR Global-tracked emerging markets equity funds absorbed another USD972m during the final week of June, capping a stellar quarter for most of these funds as China’s aggressive efforts to sustain GDP growth at around eight per cent and some not-so-bad data from key developed markets prompted investors to increase their exposure to riskier assets.

China was again the focal point for investors, with its manufacturing data and loan growth encouraging fresh flows into China and Asia ex-Japan equity funds. The former, which posted outflows of USD311m during the first quarter, took in a net USD3.8bn in 2Q09 while Asia ex-Japan funds absorbed over USD23bn.

The second quarter ended with something of a whimper for funds investing in markets or regions that depend on commodity stories. Latin America and EMEA equity funds posted their second consecutive week of outflows, although the former recorded inflows of nearly USD5bn for the quarter and the latter took in USD700m.

US equity funds ended the second quarter by posted another week of modest outflows as investors digested another batch of mixed data. US value oriented funds outperformed their growth counterparts across all capitalizations during the week ending 1 July as outflows from large cap and US financial sector ETFs more than offset flows into mid cap funds. For the quarter as a whole, US equity funds posted outflows of only USD2.8bn compared to USD47.8bn during 1Q09.

Europe equity funds posted their fifth straight week of outflows, taking second quarter redemptions over the USD4bn mark and the YTD total over USD4.5bn. Japan equity funds, meanwhile, recorded inflows for the first time in eight weeks as investors finally gave some weight to recent gains in business confidence and production despite little evidence of a credible rise in global demand for Japanese exports.

But Pacific equity funds, one of the two major diversified fund groups that invest primarily to developed markets, saw its eight week winning streak snapped in part due to investor discomfort with their big exposure to Japan.

The other diversified fund group, global equity funds, also suffered net redemptions for the week. But they ended the quarter with YTD outflows standing at USD2.2bn, almost USD5bn less than the total at the beginning of April.

EPFR Global-tracked commodity and energy sector funds saw their 16 and 12 week inflow streaks come to an end during the final week of June as the current mismatch between supply and demand outweighed hopes for a broad economic recovery going into next year. Financial sector funds, meanwhile, saw a good chunk of the more than USD700m that flowed into ETFs the previous week flow back out, leaving YTD outflows standing at USD1.19bn. During 1H08 this fund group took in a net USD7bn.

All four of the major EPFR Global-tracked bond fund groups sustained their recent momentum going into the third quarter. During the week ending 1 July emerging market bond funds and global bond funds posted their 12th consecutive week of inflows.

High yield bond funds took in fresh money for the 15th time in 16 weeks. And US bond funds absorbed over USD1bn for the 13th straight week.

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