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Emerging-Market Inflows Slow on Election, Fed

Sunday, 31 Oct 2010 05:48 PM

Investors ploughed less money into emerging-market assets in the final week of October as U.S. mid- term elections and the Federal Reserve policy meeting approach, prompting managers to hold more cash.

Emerging-market equity funds took in $2.68 billion in the week ended Oct. 27 while bond funds attracted $710 million, Cambridge, Massachusetts-based EPFR Global said in an e-mailed statement. The amounts were about half the totals absorbed in the preceding week. Some $20.2 billion went into ‘cash proxy’ money-market funds, the most in 14 weeks and the third-largest weekly intake in 2010, it said.

Speculation that a second round of easing might proceed at a slower pace contributed to “the sense of drift to the sidelines” in fund flows, according to EPFR, which tracks $13 trillion of assets. Those concerns may limit the dollar’s slide and also blunted appetites for commodity funds, it said.

The U.S. will hold congressional elections on Nov. 2 in a season dominated by voter concerns about the economy as the jobless rate of 9.6 percent held near the highest since 1983. The world’s biggest economy grew at an annual pace of 2 percent in the third quarter, stoking speculation the Fed will unveil a second round of bond purchases on Nov. 3 to secure a stronger recovery.

Inflows into emerging-market stock funds have surpassed $60 billion and exceeded $46 billion in bond funds, both poised for their best year since EPFR started tracking them in 1995. Investors are sending more capital into higher-yielding assets in developing nations as monetary easing kept interest rates in the U.S., Japan and Europe near record lows.

The U.S. dollar bought 80.4 yen at 5 p.m. in New York Friday and reached 80.39, the weakest level since April 1995, according to data compiled by Bloomberg. Gold reached a record $1,387.35 on that day.

Still, the dollar has rebounded 0.5 percent versus the currencies of six major trading partners after closing at a 10- month low on Oct. 14, according to the Dollar Index. Asian currencies slipped 0.5 percent against the greenback from a two- year high over the same period, according to Bloomberg-JPMorgan Chase & Co’s Asian Dollar Index.

“A weaker dollar and stronger commodities, equities, bonds and emerging markets have helped the third and fourth quarter to be more profitable,” Mansoor Mohi-uddin, Singapore-based global head of currency strategy at UBS AG, wrote in a report . “These trades have given back a little of their gains recently as the market refocuses on next week FOMC meeting.”

In its report, EPFR said equity funds dedicated to Brazil, Russia, India and China absorbed $30 million for the week while inflows into commodity sector funds were less than a quarter of the $1 billion recorded in the preceding week.

Investors pulled $108 million from Japan equity funds amid signs export-driven recovery is tailing off in that nation, EPFR said. The Bank of Japan on Oct. 5 cut its policy rate to “virtually zero” and announced a 5 trillion yen ($62 billion) bond-buying program.

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Investors ploughed less money into emerging-market assets in the final week of October as U.S. mid- term elections and the Federal Reserve policy meeting approach, prompting managers to hold more cash. Emerging-market equity funds took in $2.68 billion in the week ended...
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2010-48-31
 

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