BAML: Global EM funds see first inflow in six months

Inflow reflects stronger flows into credit as equity fundraising slides

Global emerging market credit funds in Europe had their first net inflow in nearly six months, as investors increasingly turn to yield safety over growth potential, strategists at Bank of America Merrill Lynch (BAML) have observed.

EM credit funds experienced continued outflows over the previous 23 weeks with $25 billion (€17.9 billion; £15.0 billion) withdrawn. However, last week they saw their biggest inflow in 42 weeks at $578 million, according to BofA Merrill Lynch Global Research Report.

The EM fund inflow reflects a wider trend of credit fund inflows growing stronger. High-grade and high-yield credit funds, loan funds, government bond funds and commodities all saw inflow increases and remained strong in money-market funds.

With concerns about emerging markets and China “flaring up again, investors continue to prefer yield safety over growth potential,” the BAML strategists said.

Inflows were more concentrated in the near term – up to four years, the strategists said. There were marginal inflows in the long-term – more than six years.

High-yield credit fund inflows were above the $1 billion mark for the fourth week in a row. Credit ETF (exchange-traded fund) fund inflows were also strong.

Separately, equity fund performance has slipped. They registered their smallest inflow in 10 months, following inflows of $55 billion over the last six months.

European share prices also fell to five week lows on Friday, amid tensions in Ukraine. Germany’s DAX index was down 4.1 percent, its worst loss in almost two years, according to press reports.