U.S. Investor Global Equity Fund Flows Overview, First Week of 2011

by: Global Investing Editor
EPFR (of Cambrdige, MA), tracker of equity fund flows, writes a weekly letter which helps figure out which stock markets appeal to American investors. Here is a summary of their latest report: Global equity funds absorbed a net $9.2 bn in the first week of Jan., of which emerging market funds accounted for $3.3 bn, while bond funds attracted an 8-week high of $2.6 bn. US investors pulled $14.8 bn out of money market funds.

With one exception, the larger fund groups that set inflow records in 2010 started the year by taking in fresh money: the diversified global emerging markets, developed market equity funds, emerging markets and global bond funds, commodity and some other sector funds, including real estate, and Africa regional, Russia, Germany, Turkey and Frontier Markets Equity Funds. But only a few matched the weekly record averages they achieved during 2010, their record-setting year.

Higher commodity prices and fresh evidence that the US economic recovery has some traction helped EPFR emerging markets equity funds kick off the New Year with their best week, in flow terms, since mid-Nov. They accounted for over two thirds of all inflows in 2010, and took in half of the money committed during the fist week of 2011. Flows into Asia ex-Japan and Latin America equity funds hit 7- and 12-week highs, while emerging Middle East and Africa funds extended their current inflow streak to 17 straight weeks. Mexico equity funds, one of the few fund countries with record outflows in 2010, suffered further redemptions despite the better US news.

Flows into emerging markets were again driven by interest in the commodity-rich among them, with Russia posting inflows for the 16th time in the past 17 weeks and Africa region (at a 2-year high of $130 mn) for the 72nd time in the past 75 weeks. Latin America funds had their best week since Q3 as investors sought exposure to Brazilian commodities. The possibility that new Pres. Dilma Rousseff will tackle some long-running structural issues fed Brazil fund flows which hit a 13-week high. Investors remain cautious about the outlook for China, which remains a drag on flows into Asia. But Korea equity funds had their best week in 8 months despite tension with North Korea.

I learn from Friday's Financial Times that innovative dentistry and orthodontics are coming out of Brazil according to the number of articles and patents. This may help my granddaughter whose permanent front teeth came in crooked. And if you want a good cheap X-ray machine or surveillance camera, it may be the one Indians are engineering. And for a cheap MRI, buy in China. BRICs are no longer only about resources.

*We remain bullish on the dollar, via our ETF, Powershares US Dollar Bullish (NYSEARCA:UUP) which goes up as the greenback gains against the euro and other currencies. The rumor mill is heavily concerned about Portuguese govt bonds. And Caixa Catalunya is rumored to be considering going for an extra €1bn from the rescue fund, after the initial €1.25 bn, DMH, our bearish reporter in Spain, writes.

*We remain bearish on gold but not enough to sell our mining stocks or SPDR Gold Trust (NYSEARCA:GLD).

*The Investors Chronicle, a British magazine, recommended Astra Zeneca (NYSE:AZN) as a top stock for 2011 on Friday. AZN was recently added to our portfolio. AZN is an Anglo-Swedish drug firm.

*Nomura included Vestas Wind System (OTCPK:VWDRY) and Catlin Group (OTCPK:CNGRY) among the companies it considers to be likely takeover candidates. We sold VWDRY and recently bought CNGRY.

*Pure Technologies was tipped by Canaccord Genuity, a Canada brokerage, because of its contract to check the quality of Mexico City's drinking water and its contract to assess services in Guayaquil, Ecuador. PUR-Toronto is a monitor of pipelines (including the Cutzmela in Mexico), now diversifying into tech support services via its SoundPrint AFO monitoring sub. The broker has a C$6.50 target on the Calgary assessment and remote monitoring company.

*As we forecast Thursday, the spreading USG blame game over the Deepwater Horizon drilling rig explosion has boosted the share price of the owner of the rig leased to BP, Transocean (NYSE:RIG) of Switzerland. RIG hit a new high Thursday because it already has provisioned enough money for whatever is coming after. It was forced by the Canton of Zug to omit its H2 dividend last year.

*Anne Lauvergeon is fighting to succeed herself as CEO of French nuclear group Areva (OTCPK:ARVCF) when her term runs out in June. My source at the company, cutting through the spate of Froggish gossip, writes “the interest of the group will be the priority” in the selection process. If you believe that, I have a lovely steel tower built buy Eiffel I can sell you. ARVCF, still 90% govt owned, despite an issue of convertible shares to the Kuwaitis, has become a potential political reward for friends of the president. The last time an energy company was snatched was when Elf-Aquitaine was handed over to incompetent but loyal Mitterrandists after he won the presidency. ELF was looted. This time the Right is doing the dirty deed, and not even speedily and slickly.

*As we've been writing, Israel is trying taxation of its offshore oil and gas finds, behaving the way other natural resource countries behave. The latest news is that Delek Group (OTCPK:DGRLY) controlling shareholder Yitzhak Tshuva is uncowed by the pending final Sheshinski committee recommendations about taxing the Tamar and Leviathon gasfields. Delek bought shares in its subs Delek Energy Systems Ltd. (TASE.DEOL), and DEOL subs Avner Oil and Gas LP and Delek Drilling LP for the equivalent of 7-figures in dollars this week. Delek Group now owns 79.07% of DEOL, 13.82% of Avner, and 7.85% of Drilling after the buys. Avner and Delek Drilling each own 15.625% of Tamar and 22.67% of Leviathan.

*Ticon (OTC:TCIJF), the Thai industrial site leasing firm, allowed shareholders to exercise two warrants for more shares, only one of which made sense. There was one foreign investor who exercised his or her warrants. We are working on getting back into the good graces of Paul Renaud, who covered Thai small caps with his www.Thaistocks.com stock service. The shares have to be bought in Thailand itself, except for this one which has a relatively active ADR. Others were only recommended for high-net worth accounts able to trade in Bangkok which offended Paul who thinks everyone should invest directly on foreign open markets.