As weeks of market volatility and dynamic fund flow movements culminated in the confirmation of QE tapering, investors guided funds back into equities focusing on DM equity funds in particular. On the bond markets, investors played it safe by directing more funds to safe havens like U.S. bond funds as opposed to EM debt funds.
A recent report from EPFR Global highlighted that some inflows are coming back to equities and bonds, with US$171mn (0.07%AUM) outflows from Asia and improvement in foreigners’ buying.
Some Inflows Coming Back to Equities and Bonds
In the week ended 7/3/2013, EPFR saw a US$2.1bn inflow into bond funds and a US$6.0bn inflow into equity funds. Among equity funds, US$5.3bn of the inflow went to developed market funds. Only a small US$0.7bn inflow was seen in EM funds, ending the 5-week outflow spree.
US$171mn (0.07%AUM) Outflows From Asia
Asia funds did not share much of the inflow this week and continued to see the 7th week of outflow. Regional ETFs had the largest ouflow within the region of US$320mn. Korea ETFs however, saw a US$399mn inflow, offsetting most of the outflow within the region.
Improvement in Foreigners’ Buying
In the week ended 7/3/2013, foreigners bought US$380mn of Asia equities. Korea and Thailand equities saw the largest amounts bought among foreigners, with US$327mn and US$259mn of inflow. Taiwan, however, was still net sold by US$282mn. As of the week ended 6/28/2013, Japan had US$3.9mn of net purchase from foreigners as Asia-ex was sold down.
Emerging Market Trend
EM equity indices have been underperforming DM equity indices since mid-2011 on the back of fundamental weaknesses at the micro-economic level. Fund flows into the EM region (both on the equity and the debt side) continued as global investors held on to the “consensus long EM story” up until Q4 2012 when EM underperformance in the equity market was questioned for the first time on a broader scale. Since then, EM equity funds witnessed mild outflows and the megatrend of strong inflows month after month since 2007 appeared to have come to an end. While EM equity funds started to see outflows from Q1 2013 onwards, the flow into EM debt funds continue until the U.S. Federal Reserve indicated possible tapering of quantitative easing (QE) from 22nd May 2013 onward.