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Overall, 11 of the 24 major equity, fixed-income and sector fund groups tracked by EPFR Global posted net inflows last week, the best showing since the last week of July when 12 fund groups were in positive flow territory.
Investors remained cautious, however, with money market funds absorbing another $28 billion, their second highest weekly total year-to-date and bringing their year-to-date inflow total to $254 billion. Other fund groups recording inflows were US, global, global emerging markets (GEM) and Europe equity, technology, financial and utilities sector and high-yield bond funds.
Investors continued to pull money out of most fixed-income fund groups while extending the outflow streaks for Asia ex-Japan equity, EMEA (Europe, Middle East and Africa) equity and Latin America equity funds to nine, 13 and 22 straight weeks respectively. At the country and sub-regional level, emerging Europe and Taiwan equity funds recorded their 22nd and 20th consecutive weeks of outflows.
With ObamaÆs administration expected to take a more active role in helping the so-called main street industries to weather the current credit squeeze, US equity funds recorded inflows for the first time in five weeks. Fund groups geared to all capitalisations absorbed fresh money, with the lionÆs share again going to large-cap blend funds which have now taken in a net $13.4 billion since the beginning of June. Funds focused on Value outperformed their Growth counterparts across all capitalisations in terms of flows, although small-cap growth and mid-cap growth funds posted better performance numbers.
Japan equity funds, meanwhile, posted modest outflows despite a strong rebound in the countryÆs equity markets as investors translated the latest cut in US interest rates into a more competitive yen for Japanese exporters. Even with a favourable exchange rate, however, US consumers will buy less in the coming months. Automaker ToyotaÆs earnings forecast, accompanied by a 23% drop in year-on-year sales during October, is the latest to reflect this grim reality.
European exporters face some of the same challenges, although the euro has slid in recent weeks versus the dollar and the European Central Bank has finally shifted to an easing bias. EPFR Global-tracked Europe equity funds took in a net $151 million during the week ending November 5 as solid flows into France and Switzerland ETFs offset outflows from regional funds. It was the third time in four weeks this fund group has taken in fresh money since it snapped a 10-week, $7.4 billion losing run in early October.
Another lengthy losing run, global equity fundsÆ 13-week, $29.1 billion outflow streak, came to an end during the first week of November as they absorbed a net $784 million. The other diversified fund groups geared primarily to developed markets, Pacific equity funds, surrendered money for the eighth time in nine weeks despite posting a collective gain of 14.6% for the week.
Most emerging markets rebounded strongly in the days preceding the US presidential election as that, coupled with continued interest rate cutting in key export markets, briefly raised hopes that the corner will be turned sooner rather than later. Against this backdrop the diversified global emerging markets (GEM) recorded their second biggest weekly inflows year-to-date, taking in a net $1.25 billion. Latin America equity funds û while still posting outflows û had their best week since early June. Asia ex-Japan equity funds recorded the biggest outflows ($521 million) in dollar terms while EMEA equity funds surrendered the most in percentage terms (1.6%).
Outflows from Asia ex-Japan equity funds were driven by the $468 million that investors pulled out of China equity funds, the most since the third week of January, as the outlook for its export story weakened in the face of slowing demand in the US and Europe. Sentiment towards Korea, however, took a turn for the better as foreign and domestic institutional investors moved to buy up oversold stocks. That was reflected in the $93 million taken in by Korea equity funds, a 48-week high.
EMEA equity funds remain under pressure due to their exposure to markets with big current account deficits, a high dependence on commodity exports or, in the case of South Africa, both. Political risk has also risen, with moderately reformist governments under pressure in Poland and Hungary, Russia already testing the incoming US administration with missile deployment threats and South AfricaÆs ruling African National Congress in turmoil.
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