Global fund flows point to greater risk tolerance

Money market funds experience a net outflow for the first time since the final week of 2007.
With investors looking ahead to the US Federal ReserveÆs next meeting and pencilling in another 50 basis point rate cut, risk aversion ebbed during the fourth week of February, according to EPFR Global. Based in Massachusetts, EPFR tracks around $10 trillion in assets in traditional and alternative funds worldwide.

Financial sector funds absorbed a net inflow of $1 billion last week and money market funds experienced a net outflow for the first time since the final week of 2007.

Last week was the best week in dollar terms for global emerging market funds since the second week of December as Asia ex-Japan equity funds posted net inflows for the first time in 11 weeks, thanks in part to increased appetite for exposure to Taiwan. Among the funds geared towards developed markets, US equity funds snapped a five-week losing streak and outflows from Japan equity funds hit an 11-week low.

While the prospect of further rate cuts when the Federal Reserve meets on March 18 helped US equity funds ôsnap their latest losing streakö during the fourth week of February, the effect on Europe and Japan equity funds was ônot as benign" because investors are projecting further currency appreciation and loss of export competitiveness, according to EPFR. Europe equity funds have now posted outflows for 26 straight weeks while Japan country funds have been hit with redemptions for 47 of the past 48 weeks.

In the case of Japan equity funds, however, the $31 million that investors pulled out last week was the smallest amount since this fund group last posted inflows during late-2007. With a majority of Japanese firms sticking by their earnings forecasts for the first quarter of 2008, more investors are willing to bet that the market is close to, or already at, oversold levels.

For the first time this year, all four of the major emerging markets equity fund groups posted net inflows. Collectively, they absorbed $1.7 billion last week, with Europe Middle East and Asia (EMEA) and Latin America equity funds having their best weeks of the year in dollar terms. Asia ex-Japan equity funds snapped a losing streak that extended back to mid-December as investors committed the largest amount in percentage terms to Taiwan country funds since the fourth quarter of 2005. Global emerging market equity funds took in a net inflow of $473 million last week.
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