| NEW YORK
NEW YORK Dec 28 Investors pumped money into
funds that hold emerging market and European stocks in the last
reporting week of the year as U.S. lawmakers failed to reach a
deal on the looming "fiscal cliff," data from EPFR Global showed
Emerging market stock funds pulled in $2.16 billion over the
reporting period and European stock funds attracted $913 million
in the week ended December 26, the fund-tracking firm said,
accounting for most of the $3.6 billion into equity funds
Investors have strongly favored bond funds over stock funds
this year on expectations that the debt securities offer more
stable returns in the face of global concerns such as the
European debt crisis, the slowdown in China, and the pending tax
hikes and spending cuts that threaten to tip the U.S. into
recession early next year.
In the last week, however, emerging market and European debt
were the winners, as cash flowed into the countries' stock funds
as well as $424 million into emerging market bond funds and $343
million into European bond funds. Bond funds altogether pulled
in $419 million in new cash over the period, reversing outflows
of $4.1 billion the prior week.
Investors grew wary of U.S. securities overall and pulled
$149 million out of U.S. stock funds and $495 million out of
U.S. bond funds. Retail investors committed money to U.S. stock
funds in just two out of 52 weeks this year, EPFR Global said.
Some analysts have said that the unresolved U.S. budget
talks have pushed investors out of the U.S. and into emerging
markets and Europe.
"As the crisis du jour becomes the U.S. and the obsession
over the fiscal cliff, investors have started to warm up to the
idea that international markets look attractive," said Chris
Konstantinos, director of international portfolio management at
RiverFront Investment Group.
The benchmark S&P 500 index fell 1.1 percent over the
reporting period as U.S. lawmakers remained in gridlock over how
to resolve the looming "fiscal cliff" of tax increases and
spending cuts scheduled to occur early next year.
Over the reporting period, U.S. House Republican Speaker
John Boehner failed to win support from his party for a proposal
that aimed to limit income-tax increases to those earning $1
million or more, complicating negotiations with President Barack
Obama, who has sought higher taxes for a larger slice of wealthy
Many investors cited concerns over the stalled talks as a
reason for weak retail sales over the period, while
weaker-than-expected data on German consumer morale, lowered
economic growth figures in Britain, and slashed economic
forecasts in Sweden also weighed on sentiment.
U.S. markets closed early following quiet trading on
Christmas Eve and remained closed on the Christmas holiday.
Demand for the safe-haven 10-year Treasury rose on Wednesday
on concerns over the status of the budget talks, with the yield
falling to 1.76 percent. Yields have since fallen to 1.71
percent in intraday trading Friday ahead of another meeting
between President Obama and and Democratic and Republican
High-yield "junk" bond funds gained $152 million over the
reporting period, reflecting a slightly greater appetite for
risk after the funds suffered outflows of $281 million the
The inflows into high-yield are modest compared to multiple
weeks of reported gains in excess of $1 billion this year.
Potential federal tax reforms on capital gains under discussion
in Washington may be prompting investors to pull back a bit, one
"Not knowing the tax consequences is going to deter some
investors that normally would seek high-yield income," said Alan
Lancz, president of Ablan B. Lancz and Associates Inc., an
investment advisory firm.