The first half of 2008 was the worst six-month period for US, Western Europe and Japan equity funds in terms of fund flows. Combined, the three markets posted a net outflow of $105 billion in the January to June period, according to data from EPFR Global, which tracks around $10 trillion in assets in traditional and alternative funds worldwide.

Only the Europe, Middle East, and Africa (EMEA) and Latin America fund groups tracked by EPFR posted net inflows of $2.9 billion and $1 billion, respectively.

ôThe Middle East and Africa equity funds have kept their astounding inflow record spotless by attracting investor inflows every week this year,ö says Massachusetts-based EPFR Global managing director Brad Durham.

Durham notes that by the second quarter of this year, Japan funds had shown signs of coming back into favour and finished the quarter posting eight straight weeks of net inflows even as global markets were crumbling.

Fund groups tracked by EPFR Global, with 1H 2008 fund flows vs 1H 2007 fund flows:

Global emerging markets: -$6.391 billion vs +$696 million
Asia ex-Japan: -$9.827 billion vs -$1.327 billion
Latin America: +$1.001 billion vs +$4.934 billion
EMEA: +$2.913 billion vs -$2.162 billion
US: -$58.065 billion vs -$5.549 billion
Japan: -$5.793 billion vs -$4.893 billion
Western Europe: -$40.917 billion vs -$576 billion

Despite the latest economic headwinds, some fund groups have momentum going into the second half of 2008. Among them are Japan equity funds, Russia equity funds and Vietnam equity funds, Middle East and Africa regional funds, financial and real estate sector funds, US municipal bond and balanced funds. But money market funds, the runaway winners when it came to attracting money during the first quarter, saw $44 billion flow out over the subsequent 13 weeks.

ôInvestors are still showing an appetite for oversold markets and sectors,ö says EPFR senior analyst Cameron Brandt. ôReal estate funds and financials certainly fall into that category. And not surprisingly, oil producing regions and countries are faring well.ö

US equity funds ended the second quarter of 2008 by posting their largest weekly outflows in over two years as investors pulled $19.1 billion from these funds, with mid-cap blend and large-cap value funds the only sub-groups to absorb new money. While some of the outflows were attributable to investors cashing in short-term arbitrage bets on the rebalancing of major exchange traded funds (ETFs), they were exacerbated by earnings downgrades and another jump in the price of oil. Year-to-date outflows from this fund group are now over eight times the full-year total for 2007.

The same concerns, allied to the European Central BankÆs hawkish stance on inflation, saw Europe equity funds post net outflows for the eighth time in the past nine weeks. During that stretch year-to-date outflows have surpassed the $35.4 billion total for last year. Uncertainty about the full extent of the damage that US subprime debt has done to the balance sheets of European banks also continues to weigh on sentiment towards this region.

Japan, however, is enjoying a rare moment in the sun. Foreign investors are taking another look at Japanese equities in general and exporters in particular. Japan equity funds posted their eighth straight week of net inflows in late June despite a sharp drop in TokyoÆs benchmark Nikkei-225 index.

Global and Pacific Equity funds, the two diversified fund groups geared primarily to developed markets, both posted outflows last week. That took Global Equity funds, which absorbed over $6 billion in new money during the second quarter of 2008, back into negative territory year-to-date.

Asia ex-Japan funds ended June with another week of outflows as investors continue to fret about the ability of governments to make the right policy choices.

ôAt the mid-way point, the Asia story in the flow data is the shift out of Greater China equity funds and Hong Kong equity funds into Taiwan equity funds by investors looking for indirect exposure to ChinaÆs economic story,ö says Brandt, adding that: ôthe fact that flows into Vietnam equity funds have been neutral or positive for nine straight weeks despite that countryÆs headline-grabbing inflation woes is also intriguing.ö