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EM funds draw biggest weekly inflows in 6 months

Emerging market equity funds attracted the most money from investors in six months, as resilience in commodity prices and signs of improvement across the world’s major economies sharpened investors’ appetite.

The EM funds secured $2.7bn this week, with exchange traded funds pulling in $1.8bn of the total, according to data from EPFR. Interest in EM equities was mirrored by bond investors, who handed EM debt funds $1.3bn.

While US president Donald Trump’s pledge to quicken the US economy helped drive global stocks to fresh highs for the first time in almost two years this week, a brightening of the picture in Japan, China and the eurozone has also helped send more money into equities.

“The flows are following better economic data and this synchronised pick-up in economic activity,” said Todd Lowenstein, head of research at HighMark Capital Management. “It is a byproduct of a better growth outlook in general.”

Alongside EM, US stock funds added a further $8.6bn during a week that saw the S&P 500 and FTSE All World Index hit new highs. Economic data are eclipsing expectations by the highest level since 2010, according to an index from Citigroup.

Overall, the past two weeks have had the biggest inflows into global stock funds since the week that the Federal Reserve lifted interest rates in December, the EPFR data showed. Signals this week from Fed chair Janet Yellen that she could raise interest rates as soon as March failed to dent the rally in US equities.

Investors have recently rekindled interest in emerging markets, after fears over more protectionist US trade policies and a strengthening dollar had led to outflows from funds after Donald Trump’s surprise election victory.

In particular, investors were looking at funds focused on smaller domestic companies that are more protected from the potential fallout from US policy changes, said Rodolfo Martell, a portfolio manager at fund manager QMA.

“We are seeing a lot of investors taking a second look at emerging markets, paying more attention to strategies that include small-caps,” he said. “People are being more diligent. They are trying to go one step deeper. Accessing broad EM will not do it these days.”

There were also renewed signs that investors were being rattled by events in Europe, including the looming French election and a stand-off between the International Monetary Fund and eurozone finance ministers over Greece’s bailout.

European bond funds suffered their largest outflows since November, and inflows to funds that invest in continental stocks slowed to their lowest pace in four weeks. Despite the anxiety over the outcome of a series of key elections in the eurozone, beginning with a Dutch vote in March, some major asset managers, including BlackRock, have turned more bullish on European equities as earnings improve.

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