Investors bailed out of both European and emerging market equities going into the last week of the first quarter over worries involving Cyprus's bailout and its impact on the euro zone crisis, EPFR Global data showed Friday.
Funds dedicated to Russia, which is exposed to declining commodity prices and the euro zone crisis, had their worst week since the third quarter of 2011, while emerging Europe equity funds saw over $100 million pulled out for the second week running, according to weekly EPFR data through Wednesday.
"With the messy end-game of the Cyprus bailout dealing a blow to the notion that the worst may be over for the euro zone and fueling fears of similar events in Slovenia or Hungary, redemptions from EPFR Global-tracked Emerging Markets equity funds jumped to a 29-week high heading into the final days of March," Cameron Brandt, director of research at EPFR, said in a statement.
A European deal to save Cyprus's banking system has roiled global markets in recent weeks. The bailout package has put intense pressure on the relationship between the euro zone member's government and the banking sector, which faces severe contraction and job losses.
EM equity funds suffered net outflows of $1.58 billion, their biggest weekly redemption since early September.
Not coincidentally, investors poured money into bond funds, their favorite flight-to-quality assets.
U.S. bond funds accounted for the bulk of the $3.72 billion that flowed into EPFR global-tracked bond funds during the week ending March 27, Brandt said, adding that flows into short-term U.S. government bond funds hit a 47-week high.
"There was evidence of a slight increase in risk appetite among fixed income investors," he added.
Flows into emerging markets bond funds climbed to a five-week high and approached the $1 billion mark for high-yield bond funds, EPFR said. Funds specializing in bank loan debt took in over $1 billion for the eighth week year-to-date, EPFR added.
Conversely, Europe bond funds saw the biggest outflows among the major bond fund groups with Italy, Spain and Switzerland bond funds the only regional country fund groups to see any fresh money.
"Appetite for Swedish debt, which peaked coming into the first quarter, has faded with Sweden bond funds posting back to back weekly outflows for the first time since September," Brandt said.
Municipal bond funds extended their longest outflow streak since the third quarter of 2011 as Detroit's new state-appointed emergency manager started work.
Still, it wasn't all doom-and-gloom for equities in the latest week.
U.S. equity funds took in fresh money for the fourth consecutive week, their longest inflow streak since the fourth quarter of 2011, with actively managed funds outgaining ETFs for the first time since the third week of January. Small and mid-cap equity funds again attracted the bulk of the inflows, EPFR said.
Among the Latin America country fund groups, Mexico equity funds continued to stand out "thanks to Mexico's linkage to the U.S. economy and hopes that President Pena Nieto's administration will push through some long overdue structural reforms curbing major oligopolies and opening up key sectors to foreign investment," Brandt said. The $406 million they took in was the highest in over a decade.
(Reporting by Jennifer Ablan and Luciana Lopez; Editing by Chizu Nomiyama)