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Graphic: Flows into Asian money market funds jump on trade, growth worries

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By Patturaja Murugaboopathy and Gaurav Dogra

(Reuters) – More money is flowing into safer assets such as money markets and bonds in Asia, data shows, as investors worry over slowing global growth, trade frictions and easier monetary policies.

Data from Refinitiv Lipper showed investors bought $30 billion (£23.6 billion) of Asian money market funds and $10 billion of the region’s bond funds in the past two months. However, they sold $3 billion of equity funds.

Their investments in money market funds in the first five months of this year stood at $34.7 billion, the highest in four years, the data showed.

Higher investment flows into such safer assets point to growing caution as the protracted Sino-U.S. trade war takes its toll on the region’s growth, even as some of Asia’s central banks adopt more expansionary policies this year.

(For a graphic on investments into Asian mutual funds, click: https://tmsnrt.rs/2IrOvPt)

“We have seen a lot of investors in a wait-and-see mode pushing into cash and short-term deposits, while they wait to see what happens with the trade war talks right now,” said Paul Sandhu, Head of Multi-Assets Quant Solutions at BNP Paribas in Hong Kong.

China and the United States said this week they were reviving talks ahead of a meeting next week between Presidents Donald Trump and Xi Jinping, raising expectations of a new phase in negotiations. Talks had broken down in May after Washington raised some tariffs and proposed new ones covering nearly all of the remaining Chinese imports into the United States.

“If these tariffs stay in place for 4-6 months, the resulting sharp tightening of financial conditions and shock to corporate confidence will push the global economy towards recession,” Morgan Stanley analysts said in a note.

A fund manager survey by BofA Merrill Lynch conducted this month showed global funds’ average cash balance soared to 5.6% from 4.6% for each of the last 3 months, marking the biggest jump in cash since the U.S. debt ceiling crisis in 2011.

“We hold more cash than we have in a while, even though the growth assets we do own are predicated on working our way through,” said Michael Kelly, Global Head of Multi-Asset for PineBridge.

Kelly said he had liquidated some of his holdings in China-A shares and Indian equities this year, but still has exposure in the two markets.

MSCI’s broadest index of Asia-Pacific shares outside Japan has fallen more than 5% since May, however, it is still up about 7% so far this year.

Meanwhile, most Asian central banks are likely to cut their policy rates this year to boost their economies, and the hopes are drawing investors to regional bonds.

Indonesia’s central bank held its policy interest rate unchanged on Thursday, but cut the reserve requirement for banks and said it was now appeared a “matter of timing and magnitude” before it made its first cut in rates since September 2017.

Policymakers in the Philippines also kept rates steady but said there was room to ease.

(For a graphic on foreign flows into Asian bonds, click: https://tmsnrt.rs/2X5473s)

Recent data from regional banks and bond market associations in Malaysia, Thailand, Indonesia, South Korea and India showed foreigners bought a net $4.61 billion of regional bonds in May, while they sold $6.4 billion in equities.

BNP Paribas’s Sandhu said he prefers switching to high yielding dollar emerging market bonds from equities this year.

“I think that Asian bonds, especially hard currency denominated bonds, have good yield. They have further attraction, as it takes some of the currency risks out of play,” he said.

(For a graphic on funds’ monthly flows into Asian hard currency bonds, click: https://tmsnrt.rs/2IopeFL)

(Editing by Vidya Ranganathan and Kim Coghill)

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