Fund Flows to China Pull Back

By Carl Delfeld of Chartwell ETF & Seeking ETF Alpha

Concerns about valuations, weak exports, a crackdown on the explosive jump in bank lending, the possibility of an equity bubble and the lack of reforms in areas such as privatization all of lead to a pullback in fund and ETF flows to China. The decline to Chinese equities was offset by stronger flows to emerging market debt as well as US and global bond funds.

Brad Durham of EPFR Global notes that "China ’s resilient growth has been a key driver of flows into emerging markets equity ETFs funds in recent months. During the third week of August, however, doubts about the quality of the loans doled out at breakneck speed by Chinese banks during 1H09 prompted investors to book profits and take some of their recent gains off the table. EPFR Global-tracked China Equity Funds had their worst week since early 1Q08 while outflows from Asia ex-Japan and Global Emerging Markets (GEM) Equity Funds hit 24 week and year-to-date highs respectively.

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The jump in risk appetite was not enough to stem outflows from Money Market Funds. But, during the week ending August 19, investors for the most part put that cash to work via other fixed income fund groups. US Bond Funds posted their third straight week of $2 billion plus inflows while Global and Emerging Markets Bond Funds extended lengthy winning streaks.

Overall, EPFR Global-tracked fixed income ETF and fund groups -- excluding Money Market Funds, which surrendered a net $12.54 billion -- took in $3.92 billion for the week while equity funds recorded outflows of $3.33 billion."