May 11, 2018 / 10:12 AM / 10 days ago

Weekly fund flows data exposes emerging market 'cracks' -BAML

LONDON, May 11 (Reuters) - The dollar’s rise hit emerging market funds hard in the past week, with equities and bonds suffering outflows of $3.7 billion, the largest since December 2016, Bank of America Merrill Lynch said on Friday.

The bank’s data, which tracks fund flows from Wednesday to Wednesday, showed some buying interest return to global equities, where funds took in $3.6 billion after shedding money the previous week. U.S. equity vehicles received $4.8 billion.

But that was partly offset by the $1.6 billion outflow from emerging equities, the most since August 2017, as the dollar’s rise to four-month highs and expectations of more increases to U.S. interest rates caused money to leave the developing world.

Emerging stocks have fallen almost 10 percent since the end of January, while sovereign dollar bonds’ average yield premium over Treasuries has risen by 70 basis points. .

“EM cracks,” BAML analysts wrote. “Three percent U.S. Treasury yields, $70 per barrel oil and a rising U.S. dollar (equates to) tighter global financial conditions and deleveraging in high beta, high leverage, low liquidity assets.”

Emerging bonds, a favoured trade before the dollar started rising in mid-April, shed $2.1 billion for their third straight week of losses - the longest negative streak since December 2016.

European stocks registered outflows of $2 billion for their ninth straight week of losses while Japanese stocks shed $400 million.

However, BAML described the week as a “tentative risk-on”, noting overall inflows to equities alongside $1.2 billion of outflows from bond funds. World shares on Friday were on track to end with a weekly gain of nearly 2 percent after two weeks in the red.

The technology sector, meanwhile, continued to bask in the after-glow of strong first-quarter earnings for global giants such as Amazon, Facebook, Taiwan Semiconductor and Alibaba. Tech stocks took in $1.3 billion in the past week, the highest proportional share of equity inflows, the data showed. (Reporting by Sujata Rao Editing by David Goodman)

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