Equity funds lose $12b as global markets stay gripped by uncertainty

Dubai: Equity funds lost a massive $12 billion (Dh44 billion) in net outflows as global equity markets skidded lower during the third week of May, fund-tracker EPFR Global said on Friday.

Optimism that a $950 billion stabilisation plan created by the European Union and IMF will limit the damage done by Greece's fiscal meltdown has largely evaporated.

Flows into and out of EPFR-tracked funds reflected the uncertainty and heightened risk aversion: redemptions from high yield bond funds topped $1 billion, seven of the nine major sector fund groups posted outflows and Europe equity funds had their worst week since late April 2008.

Investors, however, did pull $33.9 billion out of money market funds, suggesting that sentiment has not turned to the point where capital preservation is the overriding concern.

Putting money to work

Inflows into emerging market bond funds also pointed to a continuing desire to put money to work.

However, a general flight to gold was reflected in another $1 billion-plus week for commodity sector funds and US bond funds were second on the small list of major fund groups that attracted fresh money during the week.

While the prospect that Greece's troubles would trigger another dip in Europe's economic growth sunk investor sentiment globally, it was remarkable that the combined emerging market equity funds managed net inflows during the week, albeit a paltry $4.9 million.

Latin America equity funds posted their sixth straight week of outflows.

Asia ex-Japan equity funds were the only major emerging markets fund group to post inflows during the week, taking in $248 million, as some investors decided that the recent correction of China's equity markets had created some attractive entry points.

Flows into China equity funds climbed to a four-week high. Taiwan equity funds also had a good week, posting their biggest weekly inflow since early February ahead of data showing growth in the first quarter of 2010 surged to a three-decade high.

Outflows from EMEA equity funds were driven by fears that the euro zone's problems will spill over into Emerging Europe in the form of tighter credit and weaker demand for the exports of these nations, the Baltic states and Russia.

But faith in Africa's story continues to hold up: they recorded their 37th consecutive week of inflows.

Only one of the five major developed markets equity fund groups managed to attract fresh money during the third week of May as investors increasingly focused on the possibility that credit problems in Europe could knock the legs out of the US recovery.

Outflows from Europe Equity Funds hit a two-year high while US equity funds had their worst week in over a year.

Investors pulled a net $4.81 billion out of Europe equity funds during a week when one Spanish debt auction nearly failed to attract sufficient bids and the borrowing costs of weaker euro zone countries climbed sharply.

Germany's temporary ban of some naked short-selling added to the pressure on this fund group, fuelling concern among investors and fund managers that ad hoc policymaking will make it harder to establish — and hold — appropriate positions.

US equity funds lost over $7 billion during the week. The prospect of weaker demand from the United States, Europe and China did nothing for Japan's export story which, until recently, has helped Japan equity funds post solid inflows.