Equity funds see jump in inflows despite inflation concerns

Global equity funds witnessed higher inflows in the week ended Feb. 24, on optimism that global central banks would keep interest rates lower to prop up their economies, undeterred by rising inflation concerns.

Investors purchased $31.4 billion in global equity funds in the week ended Feb.24, which was 17% higher than last week, Lipper data showed. On the other hand, global bond funds saw their lowest inflow in eight weeks on worries over higher inflation levels.

The bond funds had a net buying of $7.36 billion in the week ended Feb. 24, with money flowing mainly into inflation-protection bond funds and shorter-tenor bond funds. Investors bought about $4.7 billion worth of funds that invest in U.S. short-term and medium-term bonds, while funds focused on bonds structured to provide protection against inflation, attracted about $1.5 billion, according to the data.

Among equities, tech funds had their lowest inflow in four weeks, hit by rising U.S. yields. Higher yields lower the present value of future cash flows of growth stocks, making them less attractive. At the same time, financial sector funds saw their highest inflow in six weeks, boosted by higher yields as it benefits banks' net interest margins.

Emerging market (EM) equities continued to face inflows as they saw a net buying of $2.8 billion in the week ended Feb.24, while emerging market bonds had outflows for the second consecutive week. EM bonds had an outflow of $1.2 billion this week, Refinitiv data for 9,005 emerging market bond funds showed, after seeing net sales of $652 million in the last week.

Meanwhile, Shares in South Africa's Discovery rose over 4% on Thursday despite a 10% decline in half-year profit, as it forecast a better full-year performance and reported growth at its new banking unit.

The insurer, which ties premium rates to clients' lifestyle choices, had earlier this week warned of an up to 15% decline in profits because of the impact of foreign exchange losses and interest rate changes. On Thursday, it also said it would keep its dividend on hold for now. However, the company also said that going forward the impact of these factors would recede over the full year, while hefty coronavirus-related provisions would also likely not repeat.

Its headline earnings per share, the main profit measure for the period, would therefore likely be at least 20% higher, it said. "Discovery's business model has proven to be highly relevant during the COVID-19 pandemic" and it was positioned to capitalise on emerging trends and opportunities, it said.

The insurer also said customer numbers at its bank, which it launched in 2019 and has ploughed profits back into building, had grown from 78,000 in February 2020 to 287,000 by the end of December. Deposits are almost five times higher at 5.7 billion rand ($387.47m). Neelash Hansjee, portfolio manager at Old Mutual, said the performance of other new business lines.