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Shift Made to Asia, Cash as Volatility Reigns

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As equity and bond fund groups geared to developed markets had net outflows in the week ending September 5, emerging markets in Asia and elsewhere experienced strong net inflows, according to Emerging Portfolio Fund Research-Global. About $730 million flowed to China, Greater China and Hong Kong country funds. Money market funds took in a whopping $20 billion during the week, while U.S. equity funds saw more than $5 billion flow out.

“I think this is proof, if it was needed, that investors and fund managers are now judging emerging markets on their own merits rather than seeing them as a tail wagged by the United States and Eurozone economies,” explains EPFR Global Managing Director Brad Durham. “In addition to the fact these markets are now getting some of the safe-haven flows, we’re seeing a shift to quality within the asset class. And that quality, as far as investors are concerned, is in Asia.”

In terms of performance, Asia excluding-Japan funds have posted year-to-date gains of 30.7 percent versus 6.3 percent for global equity funds, according to EPFR. The research group adds, though, that the year-to-date total flows to Asia ex-Japan are up to nearly $5 billion, which is off last year’s pace. Japan equity funds have suffered year-to-date outflows of about $10 billion.

At the sector level, energy funds took in nearly $900 million in the week ending September 5, while global technology funds took in more than $210 million; this is the 10th time in the past 11 weeks that they had net inflows. Real estate and utility funds lost some $310 million and $455 million respectively, says EPFR, which tracks more than 10,000 funds.

Global bond funds had a fifth down week, as investors withdrew $500 million. They also took out $165 million from U.S. bond funds and $17 million from high-yield bond funds, but invested a net $30 million in emerging-market bond funds.

As for money market funds, investors have added about $65 billion in net inflows since mid-July, when the credit crisis began. And balanced funds are down some $1.5 billion in the same period, after attracting more then $3 billion in the first four months of 2007.

These movements are quite a change from the trends noted by Financial Research Corporation in July. Stock and bond funds had net inflows of $26.7 billion during the month, with international/global funds bringing in $19.2 billion. American Funds, FRC reports, had $5.6 billion of net inflows in July, while Fidelity’s Nasdaq 100 Index collected $4.9 billion.

Janet Levaux is the managing editor of Research; reach her at [email protected]