Flight to safety sustained

Volatility spills over

    The flight to safety continued last week (Jan 14-20) amid ongoing oil-price plunges andChina-triggered financial market jitters. North America equity funds saw another weeklynet outflow, while bond funds enjoyed a net inflow. Meanwhile, both emerging market(EM) equity and bond funds suffered net outflows. Going forward, anticipation of moreEuropean Central Bank stimulus should help ease jitters and reduce risk aversion.

    Equity funds: Among developed market (DM) equity funds, capital net exited NorthAmerica funds for a third straight week last week (albeit less severely w-w) amiddeepening global uncertainties and expectations of another US Fed interest rate hike.

    Meanwhile, weekly net inflows to Asia Pacific and Western Europe funds rose w-w.

    Net outflows from Asia ex-Japan and GEM funds edged up w-w. Among country-specificAsia funds, capital flows varied—Taiwan, India, and Vietnam funds suffered large netoutflows, whereas Korea funds saw a net inflow of USD375m (mostly into domestic equityfunds).

    Bond funds: Bond funds overall last week saw a turn to a first net outflow in two weeks.

    Both DM and EM bond funds suffered outflows, with only North American bond fundsbucking the trend. In particular, outflows from global and Western Europe funds weresubstantial. Asia bond funds saw capital net exit for the first time in three weeks,reflecting a rise in uncertainties in EMs.

    Net inflow to domestic funds increases: The net inflow to domestic equity fundsdoubled w-w to KRW4.41t last week as the Kospi's dip below 1,900 drew bargain hunters.

    We do not read this as a resurgence of risk appetite, but as a response to valuationsbecoming more attractive following a Korean stock market plunge. Domestic bond fundsalso attracted over KRW1t, suggesting safe assets are still preferred.