Emerging markets, high risk draw investors

Investors crowded into emerging markets equity and debt funds and US equity, bond and high-yield funds in the week ended January 25, data from EPFR Global showed on Friday, showing an increased appetite for risk. Overall, equity funds gained a net $8.62 billion and bond funds gained a net $6.08 billion while money market funds saw net outflows of $7 billion, said fund tracker EPFR, based in Cambridge, Massachusetts.
The last day of the reporting period coincided with the announcement by the US Federal Reserve that it expected to keep interest rates near zero until at least late 2014 and that it had, for the first time ever, set an inflation target. Fed Chairman Ben Bernanke also said on Wednesday he would consider further economic stimulus.
The low interest rates and the inflation target, set at 2 percent, together act to keep Treasury yields low, whetting investor appetite for riskier, higher-yielding bonds. EPFR reported that US bond funds gained $4.53 billion in inflows while European bond funds gained $106 million in inflows for the week. And US equity funds saw $5.14 billion in inflows in a week when the S&P 500 rose 1.37 percent.
"Reflecting the general increase in risk appetite, redemptions by retail investors from equity funds fell to their lowest level in over six months," said Cameron Brandt, EPFR's global director of research, in a statement. European money market funds gained $3.9 billion while European equity funds lost $348 million, the 11th week of outflows for European equity funds in the past 12 weeks according to Brandt.
High-yield bond funds, meanwhile, saw inflows of $2.53 billion. Energy led the sector-specific funds with $1.17 billion in inflows. Chesapeake Energy Corp was one high-gaining stock during the week with a 6.3 percent rise on January 23 after announcing that it would reduce its natural gas production. Financial sector funds trailed energy with $808 million in inflows.
Utilities funds had the most net redemptions of the sector-specific funds at $476 million. Emerging markets equity funds saw inflows of $3.49 billion, a 42-week week high, according to Brandt's report, while emerging market debt gained $901 million in inflows.
"In addition to growing faith in a 'soft landing' for China's economy, investors are responding to some big sell-offs last year and a general shift among emerging markets to more accommodative fiscal and monetary policy," Brandt said. Dedicated BRIC funds (Brazil, Russia, India, China) gained a net $8 million for the week. In equity-specific funds, China absorbed $202 million in inflows, Brazil $140 million in inflows, and India $139 million, while Russia lost $43 million.