Fund Flows into India hit highest levels in 11 weeks

Investors cheer arrival of monsoon, says EPFR Global.

Global flows into India hit their highest levels in 11 weeks, as investors responded to the arrival of monsoon in the country, according to EPFR Global. Overall, going into the second week of July, global equity markets were staging a modest recovery, as investors shrugged off fears of a double-dip recession and went bargain-hunting.

“In case of Asia ex-Japan equity funds, investors responded to the arrival of India’s monsoon and also to the signing of an Economic Cooperation Framework Agreement by Taiwan and China, which could open doors for a $100-billion increase in cross-straits trade,” said the latest release from EPFR Global. Flows into India hit their highest in 11 weeks, while Taiwan equity funds enjoyed their second-best week year-to-date, more than offsetting the modest outflows from China equity funds, it added.

Japan equity funds also posted outflows, the seventh time in the past nine weeks, as a dip in domestic capital spending, questions about the effect of the yen’s appreciation on exports and uncertainty about the new administration’s economic policy made investors cautious.

EPFR global-tracked bond funds absorbed $3.64 billion and money market funds another $33.5 billion (a 78-week high), while equity funds posted combined net redemptions of $11.25 billion.

Meanwhile, two of the four major EPFR global-tracked emerging markets fund groups managed to post inflows during the week ended July 7, with GEM equity funds taking in $517 million and Asia ex-Japan equity funds $124 million, while EMEA (Emerging Europe, Middle-east and Africa) and Latin America Funds recorded modest outflows.

Redemptions from Latin America equity funds, which have recorded 13 consecutive weeks of outflows, were driven by concerns that the region’s second-largest economy, Mexico, might stumble due to a faltering US recovery.

Meanwhile, EMEA equity funds saw their modest three-week inflow streak getting snapped, as investors pulled more money out of funds with Russian and Emerging Europe mandates than they committed to ones with an African, Middle Eastern or Turkish focus. Africa regional funds absorbed fresh money for the 44th straight week.

However, worse-than-expected US labour and housing market data and fear of what stress tests of major European banks will reveal continued to weigh on the sentiment towards major developed markets.

Europe equity funds were the only major EPFR global-tracked developed markets equity funds to post inflows during the week, snapping a four-week outflow streak, as investors continued to shift from regional funds to ones investing in individual markets. The UK, Germany and France equity funds accounted for the lion’s share of the $387 million flowed into this fund group.

Global equity funds kicked off July by recording outflows for the ninth time in 10 weeks. Pacific equity funds, the other major diversified developed markets fund group, suffered net redemptions for the third straight week.

The lure of gold and precious metals, as a hedge against uncertainty, helped commodity sector funds top the list of EPFR global-tracked sector funds once again, with investors committing $419 million to this fund group in early July, helping the year-to-date inflows to cross the $11-billion mark.

The defensively-perceived consumer goods sector funds were the second-biggest absorbers of fresh money, pulling in $226 million.

Most other sector fund groups, however, posted outflows. Real estate sector funds surrendered over $500 million, as commercial and residential sales in the US struggled to overcome the drag caused by high unemployment and unwinding of key stimulus measures. Technology sector funds saw year-to-date flows sink into the negative territory on concerns over demand in the second half of CY10, while regulatory uncertainties kept financial sector funds under pressure.