LONDON (Reuters) - Investors pumped money into emerging market equities and debt at the fastest rate since April, while government bonds sold off and Italian funds suffered “huge redemptions”, a Bank of America Merrill Lynch analysis of EPFR data showed on Friday.
The data, which tracks fund flows in the week up to Wednesday, found that emerging markets were the biggest beneficiaries of improved risk appetite, as investors poured $1.8 billion into the asset class, split evenly between debt and equities.
That marks it the biggest combined inflow into the sector since April, BAML said in a note.
Emerging market funds are benefiting after a long period of weakness prompted by the currency crisis in Turkey and Argentina and the trade conflict between the United States and China.
A sell-off in U.S. Treasuries was also a key theme this week, with investors withdrawing $1.8 billion from government bonds and Treasuries on the back of stronger U.S. growth and a more hawkish tone from the U.S. Federal Reserve.
The data does not take into account the seven-year highs seen in 10-year U.S. Treasury yields on Thursday, which suggests more outflows could be recorded next week.
Away from the United States, improved risk appetite extended to high yield debt, which saw inflows of $2.6 billion, the highest in 18 months.
Higher oil prices - which earlier this week rose to over $86 a barrel for the first time in four years - did not translate to inflows into energy funds.
Italy was also hard hit this week after revealing a larger than expected budget deficit target of 2.4 percent for 2019, which risks putting them on a collision course with the EU.
Italy funds have lost 29 percent of assets under management year to date.
The financial sector and real estate investment trusts (REITs) also experienced outflows with BAML citing quantitative tightening as the primary driver.
Overall bond funds experienced outflows of $1 billion, while investors moved $3.6 billion in to equities, the largest of which were seen in the United States.
Reporting by Virginia Furness; Editing by Abhinav Ramanarayan/Mark Heinrich