Asia fund inflows shrinking in global terms

The region’s funds industry saw $53 billion in net inflows in the first half of 2013, but the figure is sharply down year-on-year as a proportion of global flows.
Asia fund inflows shrinking in global terms

Asia’s contribution to net global fund inflows almost halved to 11% in the first six months of this year from H1 2012, part of a continued slide since the start of last year, finds research firm Strategic Insight.

Heavy redemptions from money-market funds in China and India in June dragged down net inflows for Asia-domiciled funds to $52.6 billion for the first half. That makes up just 11% of global fund inflows of $473.6 billion for the period, down from 20.4% in the first half of last year and 13.3% in the second half.

According to Strategic, Asia’s locally domiciled funds market, excluding Australia, stood at $1.9 trillion as at the end of June.

Unsurprisingly, the biggest net fund inflows for the first half were seen in Japan, where equity products attracted $32.1 billion, money-market funds $28.7 billion (despite net outflows in June) and real estate vehicles $8.5 billion.

That means Japan alone accounted for $69.8 billion in inflows in the first six months, some $17.2 billion above net regional flow of $52.6 billion.

Chiefly to blame for outflows were money-market funds in China, which saw $46.4 billion exit during the first half – some 76% of which occurred in mid/late June. It is understood this is largely due to the country’s interbank liquidity crunch.

Bryan Liu, analyst for Strategic Insight, explains: "As the tight liquidity pushed short-term rates to record highs during the period, a large number of institutional investors [such as insurance companies] withdrew cash from money market funds and lent the money at interbank lending and repo markets to gain higher yields.

"Retail investors also redeemed their shares out of money market and short-term bond funds, and purchased wealth management products with higher returns [banks hiked the rates on such products to attract cash deposits].

"In July, as liquidity and credit crunch concerns eased and short-term rates dropped, we saw that large institutional investors gradually switched back into money market funds, collecting over $15 billion in new cash for the month."

Money-market funds in India were especially volatile during the first half this year, ranging from monthly flows of +$15 billion in April to -$18.1 billion in March.

India bond funds, on the other hand, attracted $9.8 billion in inflows, although this is likely to be largely accounted for by the country's popular short-term fixed-maturity plans.

From a global perspective – excluding Latin America, the Middle East and Australia – net inflows for the first half of this year of $473.6 billion represent a 30% slowdown from $683.8 billion in the second half of 2012. However, it’s a 57% rise year-on-year from $300.2 billion in the first half of last year.

The industry globally saw a sharp $222.7 billion of outflows in June, led by US bonds (-$66.6 billion, local Asia money-market funds (-$46.1 billion), cross-border bond funds (-$35.4 billion), local Europe money-market funds (-$26.2 billion), US money-market funds (-$20.8 billion) and local Asia bond funds (-$14.6 billion).

The strongest global net inflows for the first half by some margin were to US equity funds ($280 billion), then cross-border bond funds ($86.6 billion) and cross-border equity funds ($43 billion).

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