Investors are refocusing on long-term economic and stock market prospects when assessing current valuations. This has translated to a slight pullback in equity funds in favour of fixed-income funds.
In many cases, investors are struggling to make the connection between equity markets at 10- to 12-month highs and a global economy that has digested the bulk of the fiscal stimulus packages but continues to shed jobs, says Massachusetts-based EPFR Global in its latest report on global fund flows. EPFR Global tracks more than $10 trillion in assets worldwide.
Fixed-income funds absorbed net inflows of $5.06 billion in the week ending September 2, while equity funds suffered net outflows of $4.95 billion, according to EPFR Global data.
US bond funds attracted the most money with net inflows of $3.1 billion, while Europe, Middle East, and Africa (EMEA) equity funds fared best among the major equity fund groups with net inflows of $80 million.
EPFR Global says fears of monetary tightening in China have highlighted the dilemma facing investors: either they must reward markets that start to get their fiscal houses in order or get out of the way before waning stimulus spending triggers another dip in the global economy. Amid the uncertainty, investors pulled $713 million in funds out of global emerging market equity funds and $185 million in funds out of Latin America equity funds. They committed net $67 million to Asia ex-Japan equity funds.
The flows into EMEA equity funds continue to be driven by a re-rating of central European markets and Turkey. While Russia equity funds attracted only $9 million for the week, Turkey equity funds absorbed a year-to-date high of $53 million and emerging Europe equity funds took in fresh money for the seventh straight week.
Despite concerns that Chinese authorities will tighten lending standards, thereby putting the brakes on the country's economic growth, China equity funds took $200 million in net inflows. Indonesia equity funds continue to benefit from reduced political uncertainty and expectations of a new, deeper round of reforms, taking in new money for the ninth straight week.
In Japan, faith that the new government will maintain expansionary fiscal policies helped Japan equity funds post modest inflows. As expected, Japanese voters handed power to the Democratic Party of Japan at the end of August. It is the first time the 11-year-old party has secured enough support to form a government, and investors are now scrambling for clues about its economic policies and the degree to which it is willing to tackle Japan's entrenched bureaucracy.