The first half of January was undoubtedly good for fund flows into equity assets but some of that aggression waned off towards the end of the month. Globally, US and emerging market equities remained in favour. Also as data showed a pick-up in industrial activity in China, demand for the region’s equity picked up. According to data from global fund flow tracker, EPFR, the cautious tone was set at the start of 2013 with around $40 billion moving into EPFR-tracked money-market funds. Nevertheless, as demand for emerging market equities kept pace, EPFR-tracked equity funds extended their longest inflow streak since a 10-week run ended in the fourth quarter of FY10.
As the month progressed and equity flow continued, there were reports on rotation of money from bonds and other fixed-income categories into equity. According to EPFR Global, equity funds they track attracted $18.7 billion during the last week of January and flows left behind bond funds by nearly three-to-one margin in January. A bulk of the demand is still coming from exchange-traded funds as opposed to actively managed equity funds.
Commodity prices are also firm globally. Crude prices have once again moved above $110 and now don’t seem to fall below $100 mark very convincingly. While inflows into gold and precious metal funds have slowed compared with a year ago, international gold prices haven’t yet corrected significantly.
Back home there was some activity in markets with the start of the earnings season, expectation of a rate cut and speculative noise around the upcoming budget. Overall, data also favoured monetary easing as the November industrial production index came in pretty much flat at -0.1%. Moreover, the Wholesale Price Index slowed to 7.18% for December. Slowing growth and lower inflation raised hopes for a large cut in rates that did not come through and hence, markets were pretty reaction free on the day of the credit policy.