OREANDA-NEWS.  The net asset value of investment funds resident in Ireland (IFs) declined by 7 per cent (€101 billion) over the quarter to Q3 2015, to €1,355 billion from €1,456 billion in Q2 2015, however €30 billion of this decline was due to a reclassification of bond funds to money market funds.  Nevertheless, the net asset value of IFs grew by €140 billion when compared to Q3 2014. Investor Inflows over Q3 2015 stood at €14 billion with the highest inflows into mixed funds accounting for €5 billion respectively.  The assets held by IFs declined in value by €94 billion, largely due to declines in equity prices.

Over the quarter, IFs experienced a negative revaluation of 7 percent overall with equity and bond funds leading the downward revaluations by recording minus 10 and 5 percent revaluations respectively, reflecting developments in global debt and equity markets.  .  In contrast, all other fund types remained relatively flat, most noticeably revaluations in hedge and mixed fund types.  Both fund types employ relatively unconstrained investment strategies, which allows for relatively active portfolio management, including shorting securities and substantial derivative trading. 

Increased concern and regarding the slowing Chinese economy lead to spill over effects for global financial markets in Q3 2015. Equity markets were the clearest indicator of these concerns, with markets in the UK, US, Japan and the euro area experiencing an average decline of 10 per cent over the quarter and the Chinese stock market experiencing an even sharper decline of 29 per cent.  Equity funds experienced revaluation decreases of €54 billion over the quarter as a result of these market declines.  The largest impact was on the equity funds’ holdings of shares issued by US non-financial corporates which saw a €11 billion negative revaluation over the quarter.

Overall, debt holdings declined by 4 per cent dragged down by a 7 per cent negative revaluation in the quarter.  At end Q3 2015, 38 per cent of total debt held had residual maturities of 5 years or less, down from 42 per cent in the previous quarter indicating a move to longer maturities in search of higher yields.

Holdings of government debt stood at €290 billion in Q3 2015, with transactions outweighing revaluations as investors searched for safe heavens by increasing government debt holdings in the UK (inflows of €9.6 billion), US (inflows of €6.8 billion) and Japan (inflows of €1.5 billion), with all 3 accounting for 67 per cent or €194 billion of the total government debt securities holdings.

Exposure to the BRICs (Brazil, Russia, India and China) amounted to €42 billion in terms of total assets in Q3, of which €28 billion is in equity holdings.  The decline in the Chinese stock market was reflected in Irish investment funds’ holdings of Chinese stock with a revaluation of €4 billion occurring over the quarter with an end quarter position of €11 billion as at end Q3 2015.