Recent Flow Reports

new puzzle

According to EPFR, investors were net sellers of European equity funds in the week ending July 5 for the first time since March.  This appears to have ended the longest buying streak in a couple of years.  

Rising yields and valuations were thought to have injected a note of caution as well as some re-weighting at the start of Q2.   European equity funds, according to EPFR have taken in $22 bln this year after experiencing outflows of nearly $100 bln last year.  

European bond funds, however, continued to draw savings.  The $2 mln inflows into European bonds funds pales in comparison to the $2.2 bln inflows recorded the previous week but does extend the buying spree into a 10th week.   US bond funds also continued to attract flows.  The $.24 bln inflow was the 16th consecutive week that AUM grew.

Japan reported its May portfolio flows alongside its balance of payments report earlier today.  Japanese investors bought JPY1.32 trillion of US Treasuries, the most in nine months.  They also bought JPY906.4 bln of German and French bonds as well.  It was the first time in three months that Japanese investors bought Bunds (JPY315 bln).   They bought JPY591 bln of French bonds, the most since 2015.  For the 13th consecutive month, Japanese investors bought Australian bonds (JPY94.4 bln).

After buying an average of nearly JPY925 bln a week in foreign bonds in May, Japanese investors, tempered their enthusiasm in June, according to weekly MOF data, and were net buyers of a weekly average of about JPY168 bln.  They were net sellers in two of the five reporting weeks in June.

Japanese investors were more consistent buyers of foreign equities.  They bought an average of JPY314 bln a week in May and JPY277 bln a week in June.   Through June 30, Japanese investors bought foreign equities for six consecutive weeks, which is the longest buying spree since late September last year.

For their part, foreign investors turned net sellers of Japanese bonds in June for the first time since March.  The MOF data shows foreigners sold a weekly average of JPY239 bln of Japanese bonds in June after being net buyers of JPY426 bln a week in May and JPY390 bln a week in April.

Foreigners were net buyers of Japanese equities in June, but that was due to the large purchases at the end of May and early June.  Through June 30, foreign investors were net sellers of Japanese equities for the fourth consecutive week.   It is the longest selling streak since March.

Separately, Japan reported an acceleration of direct investment outflows (JPY1.77 trillion).  Reports suggest the foreign direct investment strategies are being pursued by traditionally domestic-oriented sectors that are constrained by the slow growth and the shrinking and aging population.  Financial services and pharmaceuticals have reportedly joined information technology as key sectors.   Japan’s foreign direct investment outflows reached a record last year and appeared to be on pace this year to surpass it.

EPFR reported that inflows into emerging market equity funds slowed last week to their weakest since March.  Of note, Russia experienced outflows, perhaps linked to weaker oil prices and the threat of new US sanctions.  Foreign investors, according to EPFR sold Russian equities for 13 fo the past 15 weeks.  Foreign investors, though bought the most Saudi equities of the year, possibly encouraged by being added to MSCI’s watch list.  China experienced inflows into its equities for the seventh consecutive week.

Also, at the end of June, the IMF reported reserves as of the end of March.   One of the most significant changes in the IMF’s report is the gradual inclusion of Chinese reserves from unallocated to allocated.  From the end of Q1 16 through the end of Q1 17, the dollar value of unallocated reserves fell by nearly $1.1 trillion, while allocated reserves have risen by 1.07 trillion.

In the first quarter, overall reserves rose by $187.12 bln, while allocated reserves to $418.6 bln.  The dollar component rose $205 bln to $5.079 trillion or 64.5%.  It represents nearly a $613.5 bln increase over the past year when it accounted for 65.5% of allocated reserves.  The dollar-value of euro holdings in reserves increased by $92 bln in Q1 to $1.706.5 trillion.  This was 19.3% of allocated reserves compared with 19.5%  at the end of Q1 16.  The euro fell 6.4% against the dollar from the end of Q1 16 to the end of Q1 17.

Sterling’s share of reserves slipped from 4.6% to a little below 4.3% over the past year.  The dollar value of sterling reserves rose by nearly $17.5 bln, and almost $13.2 bln took place in Q1 17.  Sterling has lost 12.6% against the dollar during the same period.  The yen’s shares of reserves increased from 3.6% to 4.6% over the past year   The dollar value of yen reserves rose by nearly $120 bln over the past year, with about half taking place in Q1.  The yen rose 1% from the end of Q1 16 through the end of Q1 17.

The Australian and Canadian dollar’s share of allocated reserves edged higher, but both still account for less than 2% share.  Recall that starting at the end of last year, the IMF began breaking out the Chinese yuan from the catch-all “other category.  At the end of last year, IMF figures show, central banks had about $78.83 worth of yuan in reserves.  As of the end of Q1 17, the dollar value of the yuan holdings increased to $82.63 bln.  The yuan increased about 0.8% against the dollar in Q1.   The slight growth in yuan as a reserve asset underscores two points.  First central banks more at glacial speeds in adjusting reserves and two, formal inclusion in the SDR did not spur a strong demand for yuan as a reserve asset.

Lastly, we note China’s reserves edged higher in June and have now risen for five consecutive months.  Over this five-month span, the dollar value of China’s reserves have increased by nearly $58.6 bln.  US TIC data covers April with the May report due out next week.  In the February through April period,  China says its reserves increased by $31.3 bln , while the US TIC data shows China’s Treasury holdings rose by a little more than $41.1 bln