January 11, 2008 / 8:37 PM / 12 years ago

U.S., emerging market stock funds bleed cash -EPFR

NEW YORK, Jan 11 (Reuters) - U.S. and emerging market stock funds suffered cash outflows in the week ended Jan. 9 mostly to the benefit of money market funds, but some out-of-favor stock sectors also gained, data from EPFR Global showed on Friday.

Money market funds took in a net $18.3 billion in cash, illustrating a high degree of investor concern over global asset prices and economic prospects with the threat of a U.S. recession growing.

Money market funds give investors a place to put cash for the short-term when they are unsure of where they want to best place their positions.

“There is definitely a defensive quality to the numbers but people are still willing to commit money to asset classes they think are oversold and now have some value,” said Cameron Brandt, global markets analyst at Boston-based EPFR Global.

“EMEA (Europe, Middle East and Africa) was the subgroup that got hit hardest last year and it saw some buying. Money went into the real estate sector funds, which has not been a big favorite recently,” he said.

U.S. stock funds had a net outflow of $8.14 billion while long-only emerging market equity funds lost $2.5 billion to redemptions.

U.S. real estate took in $771 million while large-cap U.S. funds had cash outflows of $9.1 billion.

In the weekly reporting period ended Jan. 9, the American Standard & Poor's 500 benchmark stock index .SPX fell 2.6 percent. At the same time the Morgan Stanley Capital International emerging markets stock index fell 0.6 percent .MSCIEF.

The small decline in emerging markets does reflect the perception among investors that this sector is growing more resilient to U.S. economic woes, albeit far from completely immune.

EMEA funds had cash inflows of $477.5 million, one of the few sectors to see cash flow in rather than out. Western Europe funds had a net $2.9 billion of cash outflows.

Latin American equity funds, the best performing sector in 2007 had net redemptions totaling $302 million. Asia ex-Japan funds lost a net $1.02 billion to redemptions.

DEBT INTAKE

In addition to the ballooning money market fund cash intake, U.S. bond funds took in a net $689.9 million in cash but high-yield bond funds lost a net $255.4 million to redemptions.

Hard currency emerging market debt funds took in a net $422.6 million versus a net $182.8 million added to local currency emerging market funds, the data showed.

In the reporting period, the benchmark JP Morgan Emerging Markets Bond Index Plus 11EMJ.JPMEMBIPLUS showed yield spreads widened by 9.748 basis points.

However, prices on emerging market bonds were fairly stable, if not up during this time, reflecting the rally in U.S. Treasuries during this period when heightened economic concerns drop cash into super-safe U.S. government debt.

“Inflows were actually fairly substantial... but again it is probably just reflective of new reallocations in favor of emerging markets, which seems to be the theory that they are more resilient than they ever were, which is probably true,’ said David Spegel, global head of emerging market strategy at ING Bank in New York.

“Of course the test will be when we begin to see how emerging market economies react to the U.S. slowdown,” Spegel said. (Editing by Leslie Adler)

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