Money flows to bonds, EM stocks in first half

LONDON Fri Jul 2, 2010 3:38pm BST

LONDON (Reuters) - A massive $453 billion (298 billion pounds) fled safe-haven money funds in the first half of 2010, heading for bonds and emerging stocks as investors fretted over the global economy but seemed more confident about the developing world's outlook.

Data from fund tracker EPFR Global shows that investors, despite their risk-averse mood, are reluctant to keep cash in low-yielding money market funds but the stuttering global recovery means they largely favour fixed income to equities.

The outflows come on top of the $320 billion money market funds lost in the last six months of 2009.

However emerging markets are continuing to power ahead, adding to the inflows seen last year, with emerging bond as well as stock funds pulling in more fresh cash.

"The numbers that catch the eye... are the massive outflows from money market funds and the money committed to emerging markets bond and equity funds," EPFR's senior analyst Cameron Brandt said in a statement released late on Thursday.

"They suggest there is still a real desire to put money preserved from the 2008 downturn back to work and a belief emerging markets offer the best combination of risk and reward," Brandt said, adding some investors seem to perceive emerging bonds as a "safe haven".

BOND FUNDS

Bond funds were the main beneficiaries of the half year, receiving a total $112.7 billion, showing investors' preference at this time for fixed income over equity.

U.S. bond funds pulled in $48.36 billion while Global bond funds saw inflows of $38.28 billion. Emerging bond funds absorbed $17.06 billion, with more than half going to local currency debt funds, EPFR said.

Emerging bond funds ended the first half of 2010, having absorbed 176 percent of the total absorbed in 2005, to date the record-setting year for this fund group.

EMERGING STOCKS

EPFR said emerging stock funds had pulled in a total $17.39 billion between January-June, though this was down from $47.73 in the last six months of 2009. Inflows to EMEA rose a touch, compared with the second half of 2009, rising to $2.46 billion.

But Latin American stock funds lost ground as Brazil's October election and monetary tightening saw investors pull out $2.3 billion. Overall, flows to BRIC stocks were 5 percent of the total taken by emerging equity funds, versus 12 percent in 2009.

Flows to Asia ex-Japan funds were in the black but fell by two-thirds to $3.91 billion.

DFEVELOPED STOCKS

Developed equities saw net outflows of $15.67 billion in the first half, losing the $12.99 billion received in the second half of 2009, EPFR said. Western Europe lost $12 billion, reflecting the euro crisis and the bloc's weak growth outlook.

But German and UK equity funds ended the half-year with inflows of $493 million and $693 million respectively, showing investors are differentiating between strong and weak markets.

U.S. stock funds shed $11.55 billion but EPFR noted this was the smallest outflow over six months since the period spanning the last 2006 quarter and the first 2007 quarter.

Japanese equity funds took in $1.9 billion.

SECTOR FUNDS

Commodity funds took in $10.7 billion and energy funds absorbed $1.5 billion, though inflows slowed a bit from second half 2009 levels. Most of the commodity inflows came in the second quarter when investors scrambled to boost exposure to precious metals, EPFR noted.

Financials extended their losing streak from last year, shedding $693 million, EPFR said, adding investors were fretting about new regulations and the amount of Greek sovereign debt lurking on the books of major banks.

(Editing by Toby Chopra)

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