No winners as the Japan disaster takes its toll

Arrow_downIn the wake of a remarkable confluence of man-made and natural disasters around the recently, EPFR Global reported

weekly outflows from global equity funds of $8.2bn(€5.77bn) – the biggest collective retreat since the first week of July last year. Investors also pulled $4.3bn from money market funds, while bond funds saw modest inflows of $535m.

“It has been a while since we’ve seen such a convergence of fund flow drivers,” says Cameron Brandt, director of research at EPFR Global. “In addition to the events in Japan, the Middle East and North Africa, you have longer term themes such as the Eurozone debt crisis and rising inflation still exerting an influence at a time when the impending US tax season and the quarterly rebalancing of major ETFs usually have an impact on some fund groups.”

There was no place to hide as both developed market and emerging market equity funds suffered outflows. Exceptions on the developed-market side were France and Germany, as well as Japan. However, EPFR Global believes inflows to Japan equity funds were due to short positions.

“We saw big flows into a few ETFs while the non-ETF mutual funds were hit with redemptions of about $850 million that totalled about 3% of their assets under management, which makes it their worst week in over 17 months,” says Brad Durham, global managing director at EPFR Global.

South Africa’s Standard Bank has highlighted another potential loser from the Japan crisis: Africa.

Traditionally, Japan has been one of Africa’s most important trade partners, and historical ties have been strengthened since 2000. Between 2001 and 2008, Japan-Africa trade increased almost four-fold, from $8.8bn to $34.3bn, driven by African exports to Japan, which grew by 366%.

Japan is also an important investor in Africa, particularly though not exclusively in the automobile sector. And while Standard Bank says that automobile firms whose production has been stalled in Japan, could relocate to Africa, Japanese foreign direct investment flows to Africa are likely to come under intense pressure in 2011, as will be Japan’s contribution to overseas development assistance for Africa, which on average ranked fifth globally between 2006 and 2008.

“The linkages between Japan and Africa – both direct and indirect – are certainly substantial,” say Simon Freemantle and Jeremy Stevens, economists at Standard Bank, in a special report on the topic. “Therefore, any renewed bout of risk aversion, dent in external demand, shelving of investment, swings in terms of trade, and fall in aid commitments will be harmful.”

©2011 funds europe