BOSTON, December 17 – Emerging Market Bond Funds had their best week of 2004 heading into the traditional year-end lull as investors bought into the combination of improving creditworthiness and higher yields offered by this asset class. The 249 funds tracked on a weekly basis by Boston-based Emerging Portfolio Fund Research (EPFR) posted net inflows of $289.6 million for the week ending December 15.
"Spreads in emerging markets have tightened thanks to encouraging developments in bellwether markets such as Brazil, Turkey and Russia,” said Cameron Brandt, a senior analyst with EPFR. “In Brazil economic growth is accelerating, giving the government more leeway to pursue its reform agenda. Russia’s foreign reserves continue to grow and it received an investment-grade rating from Fitch in mid-November. Turkey, meanwhile, is moving closer to accession talks with the European Union.”
Global Bond Funds were also in the black, recording net inflows for the 26th week out of the past 29, a run that has seen $5.61 billion in new money flow into the 343 funds tracked by EPFR that specialize in fixed income instruments in mainly global developed markets. These funds also posted a 0.88% return in their collective portfolios for the week, the fourth best weekly performance this year, as demand squeezed spreads for European, Japanese and emerging markets debt.
While good economic news is driving bond prices in emerging markets – Emerging Market Bond Fund’s enjoyed an average 0.76% increase in their NAVs during the week – its lackluster news that is pushing yields on 10-year sovereign European debt towards record lows. Economic growth is losing momentum in the Eurozone as its currency bears the brunt of the US dollar’s correction, leading investors and fund managers to project the European Central Bank will keep interest rates at their current level well into next year. Year-end supply is also tight as most of the more creditworthy countries wrap up their annual borrowing programs.
In Japan the pressure on bond prices is coming from individual investors who are pulling money out of bank accounts that pay virtually no interest and, in many cases, are about to lose government guarantees. Japan’s government has also been signaling a modest reduction in its debt issues during the next fiscal year.
“Going into the final two weeks of this year, trading volumes and liquidity are likely to ebb as fund managers and investors finish rebalancing their portfolios and turn their attention to the holidays,” said Brandt. In some cases year-end “window dressing” is prompting a reduction in the risk profiles of these portfolios – net flows into the 213 high yield funds tracked by EPFR turned negative during the second week in December.
Equity Fund Flows
The combined equity funds tracked weekly by EPFR with $1.32 trillion in total assets attracted net inflows of $1.02 billion during the week ending December 15. Most of the inflows were accounted for by the Global/International Equity Funds, which took in $697.7 million in new money while US Equity Funds received inflows of $394.9 million. It was the eighth consecutive week of inflows into Global/International Equity Funds, during which time these funds have pulled in $4.3 billion, and the seventh straight week of inflows into US Equity Funds, contributing a total of about $5 billion.
Dedicated Emerging Market Equity Funds saw outflows during the week as investors pulled a net $36.3 million out of these funds with $124.1 billion in assets. Asia ex-Japan Equity Funds continued to see strong inflows, taking in $138.5 million during the week and $4.9 billion year to date. China, Hong Kong and India Equity Funds all continue experience healthy inflows. Latin America Equity Funds received modest inflows during the week. Meanwhile, the Global Emerging Market (GEM) Equity Funds and EMEA Equity Funds suffered outflows.
Japan Equity Funds suffered net outflows for the third straight week. These funds have lost $537 million to outflows during this time but still have $8.54 billion in net inflows this year, tops in percentage of assets terms among the developed and emerging market equity and bond fund groups tracked by EPFR.
About EmergingPortfolio.com Fund Research
Cambridge, Massachusetts-based EmergingPortfolio.com Fund Research tracks equity and bond fund flows, cross border capital flows, country and sector allocations, and company holdings data from its universe of 7,000 international and emerging market funds with more than $3 trillion in assets. EPFR data comes directly from funds or their administrators and includes funds registered in the major domiciles of North America, Europe, Asia and other offshore domiciles. The data shows trends in global institutional and individual investor sentiment and is used by top emerging markets and international analysts, strategists and portfolio managers. The firm also provides investment management clients with qualitative analysis on international markets and operates EmergingPortfolio.com, an Internet site for institutional investors in emerging markets and listed in Forbes Best of the Web.
Press Contacts
Brad Durham
Managing Director, Fund Research
Email: durham@epfr.com
Tel: (+1-617) 864-4999, x. 24
Mobile: (+1-617) 270-8242