Weekly flows to equity and bond funds, week of 19 August
Global: All equity funds lost $ 3.6bn, led by US funds ($ -2.7bn), but GEM and Asia funds also posted outflows. In contrast, Latam and EMEA funds managed to attract, albeit moderate, inflows. Regional EME funds reported the bulk of inflows, whereas country funds suffered outflows. Moreover, all EMEA markets posted outflows, underpinning an overall poor week for equity funds. Recent global newsflow and the funds flow picture does not bode well for the near-term outlook. We wrote last week that flows to EMEA and Latam funds looked reasonably well supported. This view could be tested in the coming weeks, in particular if the regional newsflow turns negative. Meantime, bond funds continued to attract sizeable inflows. Debt continues to remain more attractive to investors than equity, suggesting to us that concerns surrounding growth (and demand) continue to outweigh questions surrounding how the G7 intend to finance their burgeoning fiscal deficits.
EMEA: EME equity funds managed to attract inflows in the week of 19 August, but the breakdown by country funds and markets looks less appealing. In fact, even Russia funds posted a small outflow and EMEA markets suffered outflows across the board. South Africa and Russia reported the biggest negative flows, followed by Turkey and Israel. CE3 markets posted only small negative flows, but nevertheless failed to escape the generally negative trend in the week.
Sectors: Commodity and energy funds bucked the trend by reporting solid inflows. Financial sector funds also attracted inflows after suffering substantial outflows in the week before. Telecom and utilities funds managed to post inflows as well, but too small in our view to signal the re-emergence of defensive sector rotation. In contrast, real estate funds posted a small outflows, albeit remained comfortably in positive terrain in the year so far.
Country weighting: GEM funds further reduced cash and increased their Asia weighting in July 2009. Compared to 2007, GEM funds appear overweight Asia and Latam, whereas they continue to underweight EMEA. The weighting of Russia, on the other hand, decreased in July, reflecting the markets relative underperformance. Russia remains a substantial underweight in GEM funds' portfolio allocation (compared to 2007), whereas Turkey and South Africa seem to be neutral weight. The weighting of Russia also decreased in EM Europe equity funds, owing to the market's underperformance. Compared to 2007, Russia seems to be a neutral weight, whereas Turkey is the biggest overweight. In CE3, the Czech Republic is the biggest overweight (compared to 2007) while Hungary and Poland have upside in their portfolio weigthings.