Global investors seek emerging markets, sour on U.S. stocks - EPFR

NEW YORK Sat Jan 19, 2013 3:29am IST

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Banknotes from different countries at the main office of the Korea Exchange Bank are seen in this picture illustration taken in Seoul October 22, 2010.

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NEW YORK (Reuters) - Fund investors committed $7.19 billion to stock funds worldwide in the latest week, but most of it went into emerging markets as the investors soured on funds that hold U.S. stocks, data from EPFR Global showed on Friday.

Emerging market stock funds attracted $5.83 billion of the net new cash in the week ended January 16. Meanwhile, investors pulled $1.79 billion out of U.S. stock funds, the fund-tracking firm said.

Demand for stocks, broadly speaking, has rebounded so far this year, with the latest inflows marking the second straight week in which retail investors contributed new money. That has not occurred since April 2011, EPFR Global said. Last year, investors pulled $69.1 billion out of all stock funds while pouring $493.6 billion into bond funds, the firm added.

Investors favored bonds in 2012 for their safety and stable returns in light of concerns such as the European debt crisis and U.S. budget talks. Still, the S&P 500 rose 13 percent last year.

The fresh money into emerging market stock funds is modestly lower than the record $7.39 billion the funds received the previous week. The outflows from U.S. stock funds, however, mark a sharp reversal from inflows of $10.35 billion the prior week, and amount to the biggest cash losses in six weeks, EPFR Global said.

On Thursday, Lipper reported inflows of $3.75 billion into stock mutual funds over the same reporting period. The fund research company's weekly figures for ETFs and mutual funds only apply to funds that are based in the United States, whereas EPFR Global tracks funds ranging from ETFs to hedge funds located around the world.

"People are now willing to move out the risk curve and invest in more volatile assets like emerging markets," said Robert Francello, head of equity trading for Apex Capital in San Francisco, with regard to the preference for emerging market stock funds.

Bond funds globally, meanwhile, still found strong demand with inflows of $6.95 billion, the most in ten weeks. U.S. bond funds made up roughly half of that inflow with $3.51 billion in new cash, the most in nine weeks according to the firm.

The S&P 500 rose a slight 0.8 percent over the reporting period. Federal Reserve Presidents James Bullard, Charles Plosser and Charles Evans made optimistic forecasts on U.S. economic growth for 2013, while upbeat U.S. retail sales for December and strong corporate earnings for banks JP Morgan Chase and Goldman Sachs boosted sentiment.

Investors remained cautious, however, in light of Republican opposition in Congress to increase the $16.4 trillion U.S. debt ceiling. A failure to raise the government's borrowing limit could cause the U.S. to default on its debt in coming months.

Concerns over the debt ceiling fueled demand for the safe-haven 10-year Treasury, which rose in price to yield 1.82 percent on Wednesday. A report on Friday showing U.S. consumer sentiment fell in January drove further demand, keeping the yield at 1.85 percent in intraday trading.

Investors gravitated toward riskier bonds over the reporting period and gave $1.12 billion to high-yield "junk" bond funds, which was modestly less than inflows of $1.66 billion the prior week. Emerging market bond funds also captured $2.02 billion in new demand, which was nearly a third of the inflows into the countries' stock funds.

"Investors are hungry for yield," said Steven Bleiberg, head of asset allocation at Legg Mason. "This is exactly what the central banks are trying to accomplish," he added in reference to the Fed's attempts to encourage riskier investing by keeping benchmark interest rates low.

European assets also gained some favor, with investors putting $840 million into European stock funds and $542 million into European bond funds, EPFR Global said. (Reporting by Sam Forgione; Editing by Kenneth Barry)

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