Investors return to emerging market equity funds: EPFR

By Walter Brandimarte

NEW YORK (Reuters) – Emerging market equity funds had their second-largest weekly inflows in the end of March, but it might be too soon to bet on a sustainable recovery in global risk appetite, EPFR Global said on Friday.

Inflows into the category totaled $2.6 billion in the seven-day period ending March 30, following outflows in eight of the previous nine weeks, according to data from EPFR, which tracks funds with some $14 trillion in total assets.

Cautious optimism about Japan and Libya as well as data showing a strengthening U.S. economy probably encouraged investors to return to emerging markets, EPFR said.

Cheap valuations also lured investors back. Despite last week’s inflows, investors withdrew $24.5 billion from emerging market equity funds for the whole first quarter — the largest redemptions since the third quarter of 2008, when appetite for risk vanished due to the global financial crisis.

“People had been out of the market for a while, and some entry points started to look attractive again,” Cameron Brandt, director of research at EPFR, told Reuters in an interview.

Brandt would not bet the market is ready for a steady recovery, however, as he sees a “more than usual convergence of uncertainties ahead.”

“I think that is going to be a fairly rough quarter. I’d be a little surprised if a sustainable pattern actually emerges as so much has still to be worked out,” he said, citing concerns about Portugal’s debt crisis, the withdrawal of U.S. ultra-loose monetary policies, the U.S. budget, and the evolution of Japan’s nuclear crisis.

Furthermore, the recovery in appetite for emerging markets has been uneven.

While funds investing in Russia and Asia had inflows in the past week, some $80 million still flew out of Latin America as investors worried about the impact of a slowdown in the Chinese economy and the response by Latin American authorities to rising inflation pressures.

DEVELOPED MARKETS

Developed markets equity funds also benefited from the tentative return in risk appetite. Inflows into the category totaled $6 billion in the past week, EPFR said.

U.S. equity funds lead the way, with broadly based inflows across all capitalizations and investment styles that snapped a two-week losing streak. Retail investors committed fresh money for the first time since the third week of February, with actively managed funds accounting for a quarter of the total inflows.

Japanese equity funds had outflows of $196 million in the past week — their second weekly redemptions so far in the year. Investors became more cautious about Japan due to concerns about manufacturing disruption following the March 11 earthquake and tsunami, EPFR said.

European equity funds eked out modest inflows of $16 million for the week as investors waited to see how Portugal’s debt crisis unravels, the fund tracker said.

(Reporting by Walter Brandimarte; Editing by Leslie Adler)

Investors return to emerging market equity funds: EPFR