The Barcelona stock market. The European debt crisis spread on Wednesday when Standard & Poor's lowered its credit rating for Spain amid concerns about the country's growth prospects following the collapse of a construction bubble. Markets went into a tailspin the day before after S&P slashed its credit ratings on Greece and Portugal. Image Credit: AP

Dubai:  Downgrades to the credit ratings of Greece, Portugal and Spain — with Greece's being cut to junk status — roiled equity and bond markets around the world during the final days of April.

Investors responded predictably by pulling money out of European regional equity funds and continued to funnel substantial amounts of fresh money into the bond funds. However, investors continued to make net contributions to most equity and bond fund groups. During the week ending April 29, emerging markets bond funds had their third best week on record, which follows fast on the heels of the two even stronger weeks of inflows, data released yesterday by EPFR Global showed.

In April alone, these funds received more than $5 billion (Dh18 billion) from investors. Global and US bond funds both took in over $2 billion and high-yield bond funds saw year-to-date inflows push over the $8 billion mark.

Flows into equity fund groups were mixed. Global equity funds absorbed over $1.7 billion and Europe Middle East and Africa (EMEA) equity funds had their best week since late October. But six of the nine with sector mandates posted outflows, although commodity sector funds took in nearly $1 billion with funds investing in gold and precious metals accounting for 50 per cent of that total, and Latin America equity funds recorded a third straight week of outflows.

Overall, EPFR Global-tracked bond funds absorbed another $6.73 billion during the fourth week of April while equity funds took in a net $4.86 billion. Money market funds surrendered $3.8 billion, a 16-week low. The combined emerging market equity funds took in $1.5 billion of net inflows during the week, bringing year-to-date inflows to $15.2 billion. By contrast, the combined developed market equity funds tracked have YTD outflows of $3 billion.

Fresh money

Investors continued to find fresh money hard to come by in late April as fears of a sovereign induced credit squeeze crimping growth in Eur-opean markets and China's ongoing efforts to prevent its economy from overheating called earlier forecasts into question. EMEA, Asia ex-Japan and the diversified global emerging markets equity funds all posted inflows ranging from $465 million to $641 million while Latin America funds experienced redemptions totaling $176 million.

Concerns about spillover effects from the budgetary woes of the euro zone's Mediterranean tier of members competed with robust first-quarter earnings and the US Federal Reserve's dovish statements for the hearts and minds of developed market equity investors during late April. Four of the five major EPFR-tracked developed markets fund groups ended the week having posted inflows ranging from $2.49 billion for US equity funds to $105 million for Pacific equity funds. Europe equity funds were the exception, recording outflows for the 12th week in a row that took YTD redemptions past the $8 billion mark.