Record-setting quarter for emerging market equity fund inflows

Not only are we seeing wealthy middle class investors increasing their
appetite for risk, now we are seeing average joe moving his money out
of conservative security classes to higher yielding ones.

Last week and second quarter

*net flows out from developed to emerging equities
*increases in US bond and Foreign Bond Markets
*new highs in emerging ETF Equities
*Global Bond Funds out performing commodity energy funds going into July (slowed down inflows to commodities)
* As expected China still in the spotlight in equity market developments (manufacturing and loan growth data solid)
*Japan rising exports and capital inflow!
*Latin America and EMEA posting outflows

What
does this all mean? Increased risk appetite along with Asia taking the
stage for growth. Interestingly, perhaps this is not commodity led as
capital inflows would suggest (which would be inline with recent dollar
strength)

Is this scenario sustainable?

Is this recently
move to increased risk a good thing? Will investors be surprised again,
and loose more money? Or is this just a short term play that will only
last over the 3rd quarter?

One thing is for sure is that market sentiment is running high abroad in foreign seas.

-Snapman

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http://www.globalfundwire.com/articles/detail.jsp?content_id=340433

Fund
flows resumed the pattern that has dominated the second quarter in late
June as investors pulled another USD37bn out of money market funds and
channeled some of that cash into emerging market equity funds, US
equity funds, high yield bond funds and balanced funds.

Overall,
EPFR Global-tracked equity funds posted outflows of USD2.8bn for the
week ending 1 July while bond funds absorbed a net USD3.55bn.

EPFR
Global's weekly data shows that during the second quarter, USD137.5bn
flowed out of money market funds and another USD7.6bn out of US, Europe
and Japan equity funds.

Meanwhile, the combined emerging market
equity funds collectively absorbed USD26.5bn, US bond funds USD20.2bn,
high yield bond funds USD7.7bn and other fixed income fund groups
USD8.4bn.

The flows into emerging market equity funds eclipsed the previous record for a single quarter, the USD22.4bn absorbed in 4Q07.

Commodity
and energy sector and Pacific equity funds saw their inflow streaks
snapped going into July but global bond funds and emerging market bond
funds and balanced funds extended their 12 to 13 week winning streaks.

Thanks
to April and May inflows into global bond funds that were the strongest
monthly inflows in this fund group since EPFR Global began tracking
them in 2000, these funds finished the quarter with net inflows of more
than USD4bn.

EPFR Global-tracked emerging markets equity funds
absorbed another USD972m during the final week of June, capping a
stellar quarter for most of these funds as China's aggressive efforts
to sustain GDP growth at around eight per cent and some not-so-bad data
from key developed markets prompted investors to increase their
exposure to riskier assets.

China was again the focal point for
investors, with its manufacturing data and loan growth encouraging
fresh flows into China and Asia ex-Japan equity funds. The former,
which posted outflows of USD311m during the first quarter, took in a
net USD3.8bn in 2Q09 while Asia ex-Japan funds absorbed over USD23bn.

The
second quarter ended with something of a whimper for funds investing in
markets or regions that depend on commodity stories. Latin America and
EMEA equity funds posted their second consecutive week of outflows,
although the former recorded inflows of nearly USD5bn for the quarter
and the latter took in USD700m.

US equity funds ended the second
quarter by posted another week of modest outflows as investors digested
another batch of mixed data. US value oriented funds outperformed their
growth counterparts across all capitalizations during the week ending 1
July as outflows from large cap and US financial sector ETFs more than
offset flows into mid cap funds. For the quarter as a whole, US equity
funds posted outflows of only USD2.8bn compared to USD47.8bn during
1Q09.

Europe equity funds posted their fifth straight week of
outflows, taking second quarter redemptions over the USD4bn mark and
the YTD total over USD4.5bn. Japan equity funds, meanwhile, recorded
inflows for the first time in eight weeks as investors finally gave
some weight to recent gains in business confidence and production
despite little evidence of a credible rise in global demand for
Japanese exports.

But Pacific equity funds, one of the two major
diversified fund groups that invest primarily to developed markets, saw
its eight week winning streak snapped in part due to investor
discomfort with their big exposure to Japan.

The other
diversified fund group, global equity funds, also suffered net
redemptions for the week. But they ended the quarter with YTD outflows
standing at USD2.2bn, almost USD5bn less than the total at the
beginning of April.

EPFR Global-tracked commodity and energy
sector funds saw their 16 and 12 week inflow streaks come to an end
during the final week of June as the current mismatch between supply
and demand outweighed hopes for a broad economic recovery going into
next year. Financial sector funds, meanwhile, saw a good chunk of the
more than USD700m that flowed into ETFs the previous week flow back
out, leaving YTD outflows standing at USD1.19bn. During 1H08 this fund
group took in a net USD7bn.

All four of the major EPFR
Global-tracked bond fund groups sustained their recent momentum going
into the third quarter. During the week ending 1 July emerging market
bond funds and global bond funds posted their 12th consecutive week of
inflows.

High yield bond funds took in fresh money for the 15th
time in 16 weeks. And US bond funds absorbed over USD1bn for the 13th
straight week.