Investors have pumped large sums into emerging market equity and bond funds over the past quarter, with the region’s bond funds seeing their biggest ever inflows.
The bond funds, both local and hard currency, saw inflows of $35.55 billion (€32.30 billion) – though corporate bond funds in the emerging markets category came under pressure from growing expectations of another US interest rate hike in November or December, said EPFR Global, which compiles fund flow figures.
Emerging markets equity funds posted their biggest quarterly inflow since the third quarter (Q3) of 2014, with flows of $17.03 billion.
Overall flows into bond funds including developed markets hit $141.70 billion, a level last seen in Q3 2012, with investors committing fresh money to nearly every major group except Europe high yield and Asia Pacific bond funds.
Europe equity funds saw their outflow streak push into “record setting territory” with $45.25 billion of redemptions.
But one fund manager says investors should see European equities as attractive.
In an investment note this morning, Martin Todd, European equities co-manager at Hermes Investment Management, said Europe remained “resilient” and could deliver strong long-term stock market gains.
“Investors are writing off Europe again,” he wrote. “Fund flows suggest that global managers have been net sellers of European equities for 36 consecutive weeks, as negative sentiment continues to weigh on the indices. While Europe is not without its problems, we believe investors are taking flight at a time when European markets remain attractive.”
Todd said Europe has proved resilient to crises over the past decade and that Hermes expects a gradual recovery in the European economy due to a weak euro and lower financing costs.
“In addition, the slow death of austerity may provide a further boost for growth,” he added.
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