Emerging Market Inflows Surge to 18 Month High

Investors’ appetite for emerging markets has surged to their highest point since the first quarter of last year, data has shown.

Over the last week of July a combined $1.7 billion flowed into emerging market equity and bond funds, data monitor EPFR said, with fixed income taking just over half of that amount.

Equity funds focused on these regions received the largest flows since the start of last year.

An Argentinian default—and any ensuing contagion—seemed to ruffle few feathers, EPFR found, as Latin America equity funds snapped a seven week outflow streak.

“These fund groups may be benefiting from the roughly $13 billion redeemed from US money market and high yield bond funds that was looking for a new home this past week,” said Cameron Brandt, EPFR’s director of research.

At the end of last month, the US Securities and Exchanges Commission announced measures it said would protect investors from a repeat of the “breaking the buck” event that occurred in the run up to the financial crisis. The regulator said it would allow the boards of money market funds in the US to impose redemption fees to protect investors at times of market stress.

Flows to emerging markets were dominated by funds with hard currency mandates, EPFR said. As a group, these funds have outperformed others year-to-date, according to the group’s data.

However, these funds had ground to make up in 2014 having been some of the worst performing last year.

Elsewhere, despite inflation dropping in the Eurozone, investors took up the offer from inflation-protection products at the end of July with bonds offering this type of hedge receiving their fourth straight week of new capital.

Investors continued to lose faith with high yield bonds, EPFR said. Redemptions continued from this asset class for the 56^th week in a row.