The prevailing market narrative that investors are returning to emerging markets continued last week.
Emerging market equity and bond funds once again took in high levels of money, while broader fund flows moderated after the Federal Reserve suggested it would hike rates again this year and trim its balance sheet of asset purchases.
Overall net equity fund flows plummeted to below $1 billion (€893 million) from $24.5 billion the week before and flows into bond funds were $3 billion lower.
However, investors still committed money to emerging market equity funds for the 14th week in a row, bringing year-to-date flows close to $38 billion.
Some emerging market equity highlights were:
- Asia ex-Japan equity posted their biggest inflow for nearly two years driven by the outlook for semiconductor prices and reforms
- China equity funds posted outflows for the fifth straight week, but Greater China equity saw inflows climb to their highest level in 24 months
- Taiwan equity funds – which in the previous week saw their biggest inflow since the second quarter 2015 – raised another $186 million
- Argentina equity funds posted their biggest inflow since the third quarter of 2014
- But investors also pulled more money out of Brazil equity funds as there were doubts about the delivery of promised reforms
Elsewhere in emerging market equities, low oil prices affected Russia, Saudi Arabia and Nigeria, as did the “authoritarian drift of politics” in Turkey, Russia and South Africa.
Emerging market bond funds also posted in excess of $1 billion, extending this fund group’s current run to 20 weeks and over $35 billion. Hard currency mandates outgained their local currency counterparts by a 2-to-1 margin.
However, demand for bonds went beyond emerging markets: US and global bond funds also saw over $1 billion each of commitments, and Europe bond funds managed to extend their longest inflow streak since the second quarter of 2016.
US bond funds – though still raising money – saw commitments fall to the lowest level for about two months and US equity funds recorded their sixth outflow in the past eight weeks.
The data from EPFR Global is for fund flows globally over the five days ending June 21.
“While the Fed’s action [a 0.25% rate hike] was widely anticipated, its accompanying assertion that it expects to hike rates again this year and implement a programme for trimming its balance sheet have given investors pause for thought,” said Cameron Brandt, research director at EPFR Global.
In Europe, France equity funds recorded their second highest weekly inflow this year and flows into Greece equity funds jumped to levels last seen in 2015. However, there were significant outflows from Italy equity funds.
In sector funds, technology saw a record-setting 15-week inflow streak come to an end as investors booked profits.
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