By Lisa Twaronite, MarketWatch
TOKYO (MarketWatch) — Flows pouring into emerging market funds slowed considerably in the fourth week of October, EPFR Global said, as investors grew wary awaiting the outcomes of U.S. elections and the Federal Reserve meeting next week.
Elections will be held Tuesday, and the following day, the policy-setting Federal Open Market Committee will conclude a two-day meeting at which it is widely expected to announce a second round of quantitative easing.
“With the focus on further quantitative easing in the U.S. turning from ‘if’ to ‘just how much’ and the countdown to America’s mid-term elections in single digits, flows into emerging markets equity and bond funds slowed significantly during the fourth week of October,” the Cambridge, Mass.-based fund tracker said in an e-mailed statement.
EPFR global-tracked emerging markets equity and bond funds took in $2.68 billion and $710 million, respectively, in the week ending Oct. 27 — around half the previous week’s totals.
Last week, global emerging markets equity funds took in $3.76 billion, topping the record of $3.74 billion set in the first week of October, which had been the highest total since EPFR started compiling weekly flow data.
Flows into commodity sector funds in the latest week were less than a quarter of the previous week’s total, “as speculation mounted that the second round of easing might proceed at a slower-than-hoped-for pace,” EPFR said.
Money market flows turn positive
Money market funds — a proxy for cash — reversed last week’s outflows and attracted $20.2 billion, which was a 14-week high for that fund group and the third-highest weekly tally this year, the researcher said.
Overall, equity funds took in another $6.44 billion for the week and bond funds took in $4.74 billion.
Brazil equity funds posted “another solid week of inflows despite that market’s recent efforts to control capital inflows via higher taxes.” EPFR said.
Last week, the Brazilian government raised the tax on foreign purchases of fixed income to 6% from 4%. It also raised the tax on margin deposits on futures markets to 6% from 0.38%.
Japan is also set for more quantitative easing as its “modest, export-driven recovery is tailing off,” prompting investors to pull another $108 million out of Japan Equity Funds, EPFR said.
But in Europe investors are “gravitating towards the market preaching fiscal discipline and the power that a reputation for quality has to compensate for any drag a currency exerts on export competitiveness,” the fund tracker said. Germany equity funds accounted for more than half of all flow into Europe equity funds during the week, it added.
