Cash flows to commodity, EM funds before Dubai-EPFR

NEW YORK, Dec 1 (Reuters) - Commodity, global, and emerging market equity funds each attracted more than $1 billion in fresh capital before the Dubai credit crisis last week, as investors sought protection against a weakening dollar, EPFRGlobal said on Tuesday.

Cash flew mostly out of money market funds, which recorded $3.6 billion in redemptions in the week ending Nov. 25, EPFR analyst Cameron Brandt said in a report, warning however that the impact of the Dubai news may temporarily change the direction of flows.

"These flow numbers clearly don't reflect the shock delivered by Dubai World's request for a debt freeze, so it won't be a surprise if next week's numbers look a lot different," Brandt said in the report.

"But, with a lot of sidelined money looking for an entry point, it also wouldn't be that surprising if emerging markets and sovereign debt funds attract more money before the year is out," he added.

Last week, Dubai asked creditors of two of its flagship firms for a debt standstill as part of a restructuring of Dubai World, the conglomerate which spearheaded the emirate's growth in recent years.

During the seven-day period ending last Wednesday, investors deposited a net $1.8 billion in emerging market equity funds, raising year-to-date inflows to $58.6 billion.

Including funds reporting only monthly through the end of October, total inflows into the asset class mount to $72.5 billion -- above the record $54 billion seen during all of 2007, said EPFR, which tracks funds with more than $1 trillion in total assets.

CHINA, BRAZIL MAGNETS

China and Brazil continued to attract foreign investors last week, despite concerns about the loan books of Chinese banks and efforts by the Brazilian government to restrain foreign capital inflows.

Equity funds investing in China saw their year-to-date inflows rise to a record $827 million, while those investing in Brazil took in $168 million for the week, boosting year-to-date inflows to more than $5 billion, according to EPFR data.

On the other hand, developed markets equity funds mostly had outflows as investors worried about dollar weakness. So far this year, investors have pulled a total of $55 billion from those funds, mainly due to large outflows from U.S. equity funds, EPFR said.

Japan equity funds alone lost $290 million -- the most in eight weeks -- as the combination of an appreciating yen and domestic deflation challenged the ability of Japanese companies to increase their prices, EPFR said.

U.S. equity funds recorded outflows of $4.77 billion for the week, mainly due to large redemptions in a single U.S. large-cap exchange-traded fund.

Not taking into account that fund, EPFR noted, U.S. equity funds would have recorded modest inflows thanks to positive flows into small-cap and financial sector funds.

HEDGING WITH COMMODITIES

Commodity sector funds attracted just a little less than the previous week's record inflows of $1.34 billion, as investors continued to search for hedges against dollar weakness and inflation, EPFR said.

Year-to-date inflows into those funds total $14.6 billion, the firm said.

Emerging market bond funds also fared well, lifting their average weekly inflow during the fourth quarter to $615 million, while U.S. bond funds attracted another $2.65 billion during the previous week, according to EPFR. (Reporting by Walter Brandimarte; Editing by Andrea Ricci) ((walter.brandimarte@thomsonreuters.com; +1 646 223-6319; Reuters Messaging: walter.brandimarte.reuters.com@reuters.net))