LONDON, Sept 28 (Reuters) - Emerging market bonds returned to favour in the past week, taking in some $1.5 billion, though there were heavy redemptions from broader bond and equity funds which shed a collective $8 billion, Bank of America Merrill Lynch (BAML) said on Friday.
Data from BAML, which tracks fund flows from Wednesday to Wednesday, found that emerging market debt, a sector that has been battered in recent months, had taken in the most money in six months over the Sept 19-26 period.
The turnaround comes after a long period of weakness in emerging markets, caused by currency crises in Turkey and Argentina, the trade conflict between the United States and China and the rising dollar. But the selloff appeared to have stalled in recent weeks, possibly as investors see value in the sector.
“Investors quickly back to ‘rent’ emerging markets,” BAML told clients, describing the recent selloff as “No EMergency.”
However government and investment grade bonds witnessed the biggest weekly outflow since the election of Donald Trump as U.S. president in November 2016. The past week featured a 25 basis point rate rise by the U.S. Federal Reserve, its third hike this year.
Some $2.9 billion left government debt funds in the week up to September 26, following inflows of $1.7 billion in the proceeding week, BAML said.
Investment grade bonds were also hard hit, with withdrawals of $3.3 billion, making it the worst performing asset class in 2018. BAML data also showed the biggest four-week outflows since December 2016, of which 52 percent came in the last week.
In equities, investors had pulled $3.3 billion out of global stocks, BAML said citing outflows across U.S, Japanese, European and emerging market stocks. European equity funds have shed money in 28 out of the past 29 weeks. (Reporting by Virginia Furness Editing by Sujata Rao and Matthew Mpoke Bigg)