Emerging market funds gain fifth week of inflows

The_FEDInvestors held their nerve and continued to send money to emerging market funds last week, a week in which the US Federal Reserve made its interest rate decision.

Investors expected, correctly, that the Fed would leave rates on hold, meaning emerging markets funds and other rate-sensitive fund groups benefitted, said EPFR Global.

But the Fed's first meeting since July put “100 basis points worth of interest rate hikes during the next 15 months firmly back on the table”, said Cameron Brandt, EPFR’s research director.

In the run-up to the Fed's September meeting emerging market equity and bond funds both posted their fifth straight inflow, including high yield bond funds that took in money for the third time in the past four weeks.

China equity funds extended their longest inflow streak since the third quarter of 2014. Brazil equity funds hit a 17-week high.

Latin America equity funds recorded their biggest inflow since late May on the back of strong commitments to Brazil equity funds. Brandt said that investors were chasing a rally in Brazilian equities now in its 21st month as they anticipate additional structural reforms and lower interest rates.

In developed markets, commitments to global and Europe equity funds offset redemptions from Japan, US and Canada equity funds.

Flows to Europe equity funds rebounded ahead of an election in Germany that was expected to extend current chancellor Angela Merkel's term in office.

Overall, EPFR-tracked equity funds posted collective inflows of $2.7 billion during the week ending September 20, the day of the Fed meeting. This was their 34th inflow in the 38 weeks year-to-date.

Globally, bond funds raised a net $5.6 billion and $25.5 billion flowed out of money market funds.

Commitments to emerging markets bond funds favoured those with hard currency mandates once again, Brandt said.

Hard currency attracted five times the amount of new money that investors committed to emerging market local currency funds.

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