Dubai debt crisis has limited impact on fund flows - EPFR

Risk aversion in the wake of Dubai's massive debt woes caused investors to slow their move into emerging market equity and riskier bond fund groups in the week ended Dec. 1, EPFR Global said on Thursday.

The Boston-based fund tracker said that investors did not completely run for safety after government-owned Dubai World requested a payment standstill on a maturing Islamic bond as it works out how to restructure $26 billion worth of debt.

Money market funds, the traditional safe-haven for cash, had a net outflow of $838 million, bringing its current outflow streak to eight weeks.

However, Middle East regional equity funds had net outflows for the sixth time in the past seven weeks with outflows hitting a 35-week high. Investors also pulled cash from Middle East and Africa regional equity funds, EPFR's statement said.

After the initial shock of the Dubai debt moratorium request, EPFR said investors looked to put cash into commodity and currency issues.

COMMODITY GAINS

Gold hit record highs during the reporting period and continues to do so while other precious and industrial metals gain ground as well.

EPFR-tracked commodity sector funds had net inflows of over $1 billion for the third straight week, with year-to-date inflows of $24 billion.

That helped EMEA (Europe, Middle East, and Africa), Latin America and the diversified global emerging markets equity fund groups to post inflows of $33 million, $34 million, and $687 million respectively.

"Daily flow numbers show some emerging markets funds groups regaining momentum towards the end of the week," said Cameron Brandt, senior global analyst at EPFR.

"Investors remain anxious to deploy money before the books close on 2009," he said.

Asia ex-Japan equity funds, however, had net outflows of $306 million.

"For this region, appreciating currencies raise questions about export competitiveness and increase the chances that governments will turn to capital controls," EPFR's statement said.

Dedicated BRIC (Brazil, Russia, India, China) funds had inflows for the 12th consecutive week.

Telecom sector funds had their best week since the second quarter of 2007. Healthcare/biotechnology stock funds recorded their first three-week inflow streak since September 2008.

DEVELOPED MARKET EQUITY

In the developed markets, U.S. equity funds were said to have a neutral week with safe-haven flows into large-cap exchange traded funds canceled out by redemptions from small and mid-cap funds.

European equity funds took in, on a net basis, over $2 billion for the third time this year.

But EPFR's Brandt offered the following caveat: "In both of the previous occasions the flows were reversed the following week, so we are viewing these flows as a tactical move by a few ETFs rather than a significant shift in sentiment."

Japanese equity funds suffered an 11th straight week of outflows, this time $271 million.

FIXED INCOME

Even though risk taking has helped push stock indexes up sharply this year, bond fund inflows have also proven robust.

U.S. bond funds had net inflows over $1 billion for the 21st week in a row and global bond funds have year-to-date inflows just shy of $30 billion, EPFR said.

Emerging market bond funds had inflows of $229 million, only a third of their previously weekly average for the fourth quarter of 2009. EPFR said local currency funds in the category "accounted for over two-thirds of all inflows into this fund group as the search for dollar hedges continued."

(Reporting by Daniel Bases; Editing by Phil Berlowitz)

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