Against a backdrop of disappointing US employment, manufacturing and housing markets data, investors allocated more to emerging-market (EM) funds in early August as they sought protection from the dollar weakness they believe will follow, says US-based EPFR Global.
In the week to August 4, Asia ex-Japan equity funds took in cash overall, but Japan equity funds saw outflows. Flows into Asia ex-Japan equity funds were underpinned by interest in the extremely strong economic growth stories offered by China and Singapore, says EPFR. However, India equity funds posted outflows for the first time in nine weeks, as recent growth and inflation figures suggest more interest rate hikes are likely.
The latest outlook for the US was reflected in the strength of the yen, which is at its highest level – at around 85 to the dollar -- in more than a decade, something that adds to the competitive burdens facing Japanese exporters, which are also facing stiff competition from regional rivals, says EPFR. With Japan’s domestic economy still struggling, investors pulled another $203 million out of Japan equity funds.
By contrast, flows into EPFR Global-tracked EM equity funds hit a 38-week high during the seven days ending August 4, with global EM (GEM) equity funds having their best week since late in the fourth quarter of 2008. Overall, investors put $5.32 billion into equity funds -- with EM funds accounting for more than three-quarters of that total -- and committed $4.12 billion to bond funds.
EM equity funds tracked by EPFR absorbed more than $4 billion in the week to August 4, as weak US data increased the attractions of the growth rates, appreciating currencies and solid fiscal profiles of many emerging markets. Investors favoured diversified exposure, with GEM equity funds getting the lion’s share of the new money.
Asia ex-Japan, Latin America and EMEA equity funds also recorded net inflows ranging from $84 million to $394 million.
On the fixed-income side, EM bond funds took in more than $600 million for the ninth consecutive week, $866 million to be precise. The prospect of fresh measures by the US Federal Reserve to stimulate credit, which include keeping interest rates extremely low, also helped high-yield bond funds and real estate commodity-sector funds post strong inflows and prompted investors to take another look at Europe, says EPFR.
Meanwhile, US bond funds recorded inflows for the 72nd time in 73 weeks and YTD flows into global bond funds climbed over the $42 billion mark.
Money-market funds posted inflows for the second straight week, the first time they have done so since early January.