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Word ‘reform’ works its magic for China equity funds going into December

China equity funds came into 2013 on the back of their biggest quarterly inflow in over a decade and looked to have broken decisively with their BRIC (Brazil, Russia, India and China) peers.

But questions about China’s export story, the trajectory of its property markets and the health of its financial sector saw over USD11bn pulled out of China equity funds between March and September.
Hopes that China’s new leadership is committed to reforming the world’s second largest economy have translated into four straight weekly inflows with the latest hitting a 45 week high.
The enthusiasm for China was not enough to snap the current outflow streak for emerging markets equity funds, which now stands at five straight weeks, as investors continue to gravitate towards developed markets equity funds which have absorbed nearly USD350bn year-to-date.
Overall, investors committed USD13.04bn to EPFR Global-tracked equity funds during the week ending November 27 while bond funds took in USD1.24bn and a net USD2.3bn flowed out of money market funds.
At the country level flows into Japan equity funds rebounded, Italy equity funds absorbed fresh money for the ninth straight week as divisive ex-Prime Minister Silvio Berlusconi was expelled from the Senate and Russia bond funds recorded their biggest weekly inflow since the current financial crisis began.
YTD redemptions from EPFR Global-tracked emerging markets equity funds pushed past the USD20bn mark in late November as investors continued to fret about the timing of the end-game for the US Federal Reserve’s current quantitative easing programme (QE3). Between 21 November and the end of the month over USD1bn was redeemed from the diversified global emerging markets (GEM) equity funds and another USD580m from Latin America and EMEA equity funds.
Only Asia ex-Japan equity funds were able to swim against this tide, taking in USD840m over the same period thanks to the enthusiasm for China and a rebound in Korea equity funds flows. The latter snapped a three week outflow streak as local investors returned, with won-denominated flows hitting their highest level since the third week of October, although the outlook for Korea’s economy remains mixed thanks to uncertain demand from key trading partners.
EPFR Global-tracked developed markets equity funds ended November with nine straight days of inflows despite the ongoing debate over the Fed’s intentions regarding QE3 and some mixed macroeconomic data from Europe. Retail redemptions, however, soared to their highest level since the week ending 2 January. All five of the major fund groups took in fresh money with equity funds leading the way in dollar terms and Japan equity funds in flows as a percentage of assets under management terms. Flows into Japan equity funds, meanwhile, bounced back a week after posting the biggest outflow in over two years, although domestic investors were still net redeemers as the latest surge in Japanese equity prices present them with profits to book. 
Going into the final days of November EPFR Global-tracked bond funds posted back-to-back weeks of inflows for the first time since late May. But uncertainty about the future of QE3 saw those modest inflows reversed between November 28 and the end of the month. Flows into US bond funds tilted sharply back towards the short end of the yield curve with flows into short term bond funds hitting a nine week high while redemptions from long term US government bond funds were the largest since the third week of August. Appetite for exposure to municipal debt remains under pressure from Detroit’s bankruptcy saga and Puerto Rica’s fiscal woes: investors pulled another USD1bn out of municipal bond funds during the final 10 days of November.

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