May 11, 2018 / 12:06 AM / a year ago

UPDATE 1-U.S-based emerging market stock funds post largest outflows since 2016

 (Adds data on mutual funds and ETFs, analyst quote, table,
    By Trevor Hunnicutt
    NEW YORK, May 10 (Reuters) - U.S. fund investors are
wavering on one of their favorite bets of the last year,
walloping emerging-market stocks and hunkering down in
short-term bonds.
    Funds offered in the United States but invested in shares in
emerging markets recorded $870 million in withdrawals, the most
since November 2016, during the week ended May 9, research
service Lipper said on Thursday.
    The risk-averse move in emerging markets was paired with a
rush into short-term debt as U.S. President Donald Trump pulled 
out of an international nuclear deal with Iran, raising the risk
of conflict in the Middle East and casting uncertainty over
global oil supplies.
    "People decided to park some of that money," said Tom
Roseen, head of research services for Thomson Reuters Lipper.
    Emerging markets have been on their hottest run since their
relief rally in 2009 after the apex of the global financial
crisis. Over the last 16 months, the funds have pulled in nearly
$67 billion, according to Lipper.
    Rising oil prices should be helping the developing markets,
which include some of the biggest crude producers, yet May is on
pace to deliver their first month of withdrawals of 2018.
    Recent days brought news including Argentina's move to seek
financing from the International Monetary Fund to calm volatile
markets. That adds to pressures including the trade
conflict between the United States and China.
    U.S. Federal Reserve chairman Jerome Powell on Tuesday said
interest rate hikes the Fed has planned may not pose as big a
risk for emerging-market economies as many have thought.

    Rising rates make bonds more attractive to foreign buyers,
who sell assets in other currencies to buy dollar-denominated
    That helps lift the greenback, making it harder for emerging
market countries to repay debts or import goods priced in
dollars. The trade-weighted U.S. currency is up more than
3 percent over the last month.
    Rising rates have helped short-dated debt buyers. The notes
now offer plumper yields and in general lack the interest-rate
sensitivity of longer-dated bonds. Investors can also use the
bonds to hide from greater volatility in stocks.
    Corporate bond mutual funds and exchange-traded funds (ETFs)
focused on the short-term segment of the market pulled in $1.1
billion during the week, the most new cash for the category
since September 2017, Lipper data showed.
    Investors are also rewarding smaller U.S.-listed companies
seen as sheltered from trade disputes and benefiting from
corporate tax cuts. Small-cap funds tracked by
Lipper pulled in $1.2 billion during the week, a fifth straight
week of inflows.
    The following is a breakdown of flows for the week,
including mutual funds and ETFs:
 Sector                    Flow Chg  % Assets  Assets     Count
                           ($blns)             ($blns)    
 All Equity Funds          -0.231    -0.00     7,229.139  12,251
 Domestic Equities         0.566     0.01      4,954.813  8,723
 Non-Domestic Equities     -0.796    -0.04     2,274.325  3,528
 All Taxable Bond Funds    0.086     0.00      2,761.526  6,065
 All Money Market Funds    8.211     0.31      2,678.476  1,041
 All Municipal Bond Funds  0.167     0.04      404.565    1,458
 (Reporting by Trevor Hunnicutt
Editing by Jennifer Ablan and Chris Reese)
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