Investors Pull $7.1 Billion From Stock Funds Globally, Buy Emerging Bonds

By Shiyin Chen and David Yong (Bloomberg)

Investors withdrew a net $7.1 billion from equity funds tracked worldwide in the week to Aug. 25 and put some $5.2 billion into bonds amid concern economies in the U.S. and Europe are losing momentum, EPFR Global said.

A net $5.4 billion was redeemed from U.S. stock funds, while inflows into emerging markets were the lowest in 13 weeks, EPFR said in an e-mailed statement. Developing-nation bond funds took in $1 billion, on course for a record-setting year, while U.S. bond funds drew $2.5 billion, according to the Cambridge, Massachusetts-based research firm.

The MSCI AC World Index, tracking developed and emerging markets, has dropped 4.2 percent this month after government data signaled a slowdown in the U.S., China and Japan and Standard & Poor’s lowered Ireland’s credit rating. Concern the global rebound will falter is driving investors to the relative safety of bonds, sending yields on two-year treasuries and German 30-year government securities to a record low this week.

“The weaker the numbers come in, particularly in housing, the higher the probability becomes” for a second recession in the U.S., David Wyss, S&P’s chief economist, said in a Bloomberg Television interview in Hong Kong. “While you’ve got stellar German growth, the rest of Europe is looking pretty sick.”

While withdrawals from funds investing in U.S. stocks were the most in dollar terms, redemptions from Japanese stock funds were the highest in terms of percentage of assets under management, according to EPFR. European equity funds also posted net outflows, taking year-to-date losses to $15.7 billion, the research firm said.

EPFR Global tracks funds with some $13 trillion in assets worldwide.

Emerging Markets

Global emerging-market funds took in $333 million for the week, while those investing in Latin America and emerging Europe, Middle East and Africa attracted less than $40 million each, according to the statement. Asia excluding Japan funds posted outflows of $289 million, EPFR also said.

“The biggest headwind for Asian markets was the weaker data emerging from key export markets, with the U.S., China and Japan all posting numbers that suggest their economies are slowing,” EPFR said.

Data released in the week ended Aug. 25 showed U.S. existing home sales slumped, orders for durable goods rose less than forecast and jobless claims jumped. Earlier this month, Japan reported that its gross domestic product grew an annualized 0.4 percent in the three months ended June 30. While that allowed China to overtake Japan as the world’s second- largest economy, Chinese growth is also cooling, with July industrial output rising the least in 11 months, retail sales growth easing and new loans increasing less than estimated.

Treasuries, Bonds

The U.S. economy grew at an annual rate of 1.4 percent in the second quarter, versus the 2.4 percent pace the government estimated last month, according to a Bloomberg survey before the release of Commerce Department figures today.

Inflows into emerging-market bond funds continued for a 13th consecutive week, taking this year’s total beyond 300 percent of the annual record set in 2005, EPFR said in today’s statement. The firm had previously said the 2005 high was $9.7 billion.

Dollar bonds in developing nations have returned 13 percent this year through yesterday, according to JPMorgan Chase & Co.’s EMBI Global Diversified Index that tracks debt of 40 nations. The market has rallied every quarter since 2008, the longest winning streak since March 2004. An index tracking local- currency debt gained 18 percent this year.

Global bond funds were also poised to surpass last year’s record inflow of $47 billion, while inflows into U.S. bond funds stood at 70 percent of the total received last year, also a record high, according to EPFR.

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One Response to Investors Pull $7.1 Billion From Stock Funds Globally, Buy Emerging Bonds

  1. shaun noll, cfa

    particularly interesting since, if history is correct and relevant, we are heading into a period of sustained sovereign defaults. If China slows we will get commodity price declines, which historically only put further pressure on sovereign finances of emerging markets…..

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