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A new rotation? EM fund inflows return at the end of March

Emerging market equity funds saw their first weekly inflows since January in the week to March 30.

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EPFR Global data reveals $2.6bn worth of inflows over the period, the highest level since the first week of the year, but this was not enough to prevent EM equity funds from enduring their worst quarter since the peak of the financial crisis in Q3 2008.

The firm attributed the fresh inflows to "cautious optimism about Japan’s recovery, the strength of the US economy and the possibility of a negotiated exit for Libyan leader Muammer Gaddafi".

Russia and frontier markets were the only EM sectors to post net inflows on the quarter, of $3.6bn and $258m. Concerns over inflation likely prompted the considerable $1.6bn in net outflows from China funds, while Bric funds suffered even more severely with $2.36bn of outflows.

Developed market equity funds continued to see inflows, but in keeping with March trends these were at lower levels than had been seen earlier in the year.

US equity funds led the way, reversing two weeks of outflows, though sovereign debt caution meant European equity fund inflows were meagre and ongoing concerns over reconstruction costs in Japan saw equity funds focused on the country posting net outflows for the week – in contrast to the optimistic Japan outlook cited as a factor for returning EM inflows.

Strong performance from energy and commodity sector funds saw the wider global sector post a collective $25.8bn of inflows in the first quarter of 2011.

In bond markets, high yield saw a marked improvement in sentiment with  $1bn of net inflows on the week, but Europe bond funds continued to suffer on eurozone worries. Global and EM bond funds saw inflows reach 10 and 11-week highs respectively, EPFR said.

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