Fund flows to emerging markets losing steam

Investors are shifting to cash.
Emerging market funds, which averaged net inflows of $4.78 billion during the previous four weeks, took in only $862 million last week as institutional, corporate and individual investors shifted their preference to cash, according to data provider EPFR Global. Money market funds took in $16.7 billion in net inflows last week.

Asia ex-Japan equity funds took in $233 million in net inflows last week, their worst week since mid-August as flows into China country funds remained subdued and flows into Hong Kong, Greater China and South Korea country funds turned negative.

In the case of the South Korea country funds it was only the second time in the past 25 weeks they had posted net outflows.

The prospect of further monetary tightening in China and the impending release of a slew of key third quarter earnings reports gave investors a reason to pause after pumping a net $14.17 billion into Asia ex-Japan funds in the previous weeks between August 23 and October 17.

ôThe recent enthusiasm for emerging markets has been tempered by the realization that their economic progress could still be tested by a US recession, rather than the more benign slow-down in US growth that many investors have penciled in,ö says Massachusetts-based EPFR global analyst Cameron Brandt.

At the country level, the Brazil, Russia, India and China (BRICS) theme kept some momentum. BRIC equity funds absorbed new money for a ninth straight week and Brazil, Russia and India country Funds also recorded net inflows. But, while investors increased their exposure to the EMEA regionÆs biggest market, it was not enough to stop EMEA equity funds from posting net outflows for the first time in five weeks.

Meanwhile, net redemptions from global bond funds and US, Europe, Japan and global equity funds totaled $5.77 billion last week. Japan equity funds have now posted outflows for 30 straight weeks, while Global bond funds have done the same for 12 straight weeks.

Sector-wise, financial and real estate funds globally both took in fresh inflows. EPFR Global notes thatÆs because weak US housing sales, durable good orders and job numbers, plus the $8 billion write-off announced by Merrill Lynch, reinforced expectations of another rate cut by the US Federal Reserve.
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