Additional easing measures unveiled by the European Central Bank (ECB) on December 3 got an underwhelming response from equity and foreign exchange markets.
But mutual fund investors appear more optimistic that the extension of the ECB’s current quantitative easing program and a further cut in its discount rate will bolster a fragile regional recovery and protect the export competitiveness of the euro.
During the week ending Dec. 9 EPFR Global-tracked Europe Equity Funds took in over $3.4 billion, a six week high, as they extended an inflow streak stretching back to the beginning of the quarter.
While Europe Equity Funds were adding to their already impressive annual inflow tally US Equity and Bond Funds were hit by a combination of funds going ex-dividend, which shows up as an outflow until re-invested, and investor caution ahead of next week’s meeting of US Federal Reserve policymakers.
Overall, Bond and Equity Funds posted outflows for the week of $6.1 billion and $6.4 billion respectively. Flows for US Money Market Fundsrebounded as the week progressed and Europe Money Market Funds absorbed over $6 billion.
At the country and asset class level Brazil Bond Funds posted large outflows for the second week in a row, redemptions from South Africa Equity Funds hit a 49 week high, Germany Equity Funds chalked up their largest inflow since the final week of 2Q15 and Mexico Equity Funds recorded a third consecutive week of $100 million plus inflows.
Outflows from US High Yield Bond Funds jumped to levels last seen in late 4Q14 and Dividend Equity Funds racked up their fifth consecutive weekly outflow.
The impending meeting of US rate setters and fears that China’s depreciating renminbi will help its exporters at the expense of other emerging markets saw redemptions from EPFR Global-tracked Emerging Markets Equity Funds rebound to a three week high during the week ending Dec. 9.
Asia ex-Japan Equity Funds accounted for two-thirds of the headline number, reflecting fears its corporate borrowers will be hardest hit by any increase in US interest rates and its exporters will be hardest hit by the combination of Chinese over-capacity and a depreciating currency.China, Asia ex-Japan Regional, India and Korea Equity Funds all experienced net redemptions in excess of $100 million during a week when China’s currency hit a four month low versus the US dollar.
Redemptions from EMEA Equity Funds, meanwhile, climbed to an 11 week high as investors reassessed Africa’s story in light of weak commodities prices and steered clear of funds dedicated to Russia and Turkey. In response to Africa’s dependence on Chinese capital and demand for raw materials, the impact of slumping oil prices on Nigeria, Angola and Algeria’s economies, terrorist attacks in Mali and Egypt and South Africa’s recent ratings downgrade, redemptions from Africa Regional and South Africa Equity Funds have hit 30 and a 49 week highs respectively over the past fortnight.
With Venezuelan voters delivering a strong rebuke to their leftist government, Latin America Equity Funds took in fresh money for the fifth consecutive week as investors continue to pencil in more orthodox economic policymaking to their outlook for the region.
Although diversified funds are still shying away from Brazil – its average Latin America Equity Fund allocation is at levels last seen in 1Q03 — flows into dedicated Brazil Equity Funds hit a 25 week high.
