Swiss funds continue flight to emerging mkt debt

* Swiss mutual funds now hold 16 bln Sfr in EM debt

* Fear of equities, the euro, not faith in EM
* Bonds almost level with equities as largest asset class
By Martin de Sa’Pinto

ZURICH, May 21 (BestGrowthStock) – Swiss mutual funds pumped 3
billion Swiss francs ($2.6 billion) into emerging markets bonds
in April, making them the fastest growing of any asset class in
the past year, Lipper data show.

While still a small proportion of the 633 billion francs
held in Swiss mutual funds, emerging market bonds now account
for 16 billion francs, and investments in the asset class have
more than quintupled in the past year.

The pace of flows to emerging market debt has accelerated
this year, with the April inflows being the largest recorded.

“Rather than faith in emerging markets debt, this is a
flight from euro denominated assets as fears over sovereign debt
in the euro zone continue,” Stefano Pisano, Portfolio manager at
Lugano-based asset manager Q7 Funds told Reuters on Friday.

“It mirrors the flight from the euro deepening worries about
other major currencies seen in recent weeks.”

Emerging market equities haven’t fared as well, and had
small outflows in April. The asset class is typically more
volatile than developed equities markets, supporting the idea of
rising risk aversion among investors.

“At this moment investors are frightened of the elevated
volatility in equities markets globally and of European debt, so
they are taking exposure to emerging market currencies and
emerging market debt,” Pisano said.

BOND BUBBLES?

Even so, money market funds, typically the instrument of
choice for investors seeking a safe haven, had outflows of 1.8
billion, the largest of any asset class.

“Investors are scrambling for yield,” explained Pisano.

“They don’t want to hold their money in money markets that
yield almost nothing, but they see an increase in allocations to
equities as too risky.”

Pisano said the flows into emerging market bonds may be
overdone, and compared them to the growing allocations to junk,
or sub-investment grade bonds.

“Both these markets look frothy at the moment, we may be
seeing bubbles forming,” he said.

Bond funds had total inflows of 6.3 billion francs, while
investors pulled 1.8 billion francs from money market funds and
1.5 from equities. With positive performance adding 2 billion
francs, total bond assets are fast overhauling equities as the
largest asset class.

Private bank Pictet had the largest client inflows with 2.5
billion francs, followed by former Julius Baer (BAER.VX: ) unit
Swiss and Global, now part of GAM Holding (GAMH.VX: ) where
clients put in 1.6 billion francs.

UBS (UBSN.VX: )(UBS.N: ) Switzerland’s largest bank, saw the
highest outflows as clients pulled 2.5 billion francs, but
remains the largest mutual fund manager.

Money

($1=1.156 SWISS FRANC)
(Editing by Jon Loades-Carter)

Swiss funds continue flight to emerging mkt debt