Emerging market equity funds inflows tripled last week as the outlook improved for developing nation exporters, EPFR Global said.
The funds attracted $1.7 billion in the week ended 23 December from $571.4 million in the previous week, EPFR said in a statement. That added to a record $80.3 billion of investments in emerging market stock funds so far this year, compared with outflows of $48 billion in the same period in 2008, EPFR said.
The MSCI Emerging Markets Index has rallied 73% this year, set for its best annual performance. Developing nations were the 10 best performing markets this year as stimulus measures from China to Brazil helped bolster a recovery in economic growth. The gauge slid 0.1% to 979.98 at 7.03pm in Singapore, snapping a five-day advance.
“This year’s inflows are way off the charts,” Brad Durham, managing director at the Cambridge, Massachusetts-based EPFR, said in a Bloomberg Television interview on Tuesday. “There will be some vulnerability in the first part of the year, just given that emerging market indices have performed so strongly.”
“Investors may add more money into emerging market funds in 2010 as they look for earnings per share growth of between 28% and 40%,” he said. Funds investing in China took in $153 million in the week ended 23 December, while those that focus on all the so-called Bric nations (Brazil, Russia, India and China) received $451 million, according to the statement.
Flows into global emerging market equity funds surged as the outlook for exporters in emerging markets improved with better data from the US economy and as the US Federal Reserve kept interest rates on hold, EPFR said.
Emerging market bond funds attracted $369 million of inflows last week, EPFR said, taking the tally to more than $8 billion this year. The record for this fund group was set in 2005 when they absorbed $9.7 billion, according to data compiled by the fund tracker.
Investors demanded a yield premium of 2.76 percentage points over US treasurys to buy emerging market sovereign debt, according to JPMorgan Chase and Co.’s EMBI+ Index. The spread fell for a third day to the least since July 2008.
Dollar-denominated bonds sold by developing nations handed investors a 26% return so far this year versus a 9.7% loss in 2008, the most since 2003, according to JPMorgan’s EMBI+ Composite Index.
China said on 25 December its economy grew faster than it estimated so far this year, and also raised its 2008 growth to 9.6% from 9%. South Korea’s Kospi index may rise as much as 20% in the first half as exporters benefit from recovering demand in developed nations, Mirae Asset Securities Co. Ltd said on Tuesday.
Next year, you can expect demand from advanced economies, led by the US and European Union, to be a catalyst for exporters such as technology companies, Sean S.Y. Hwang, head of Korea equity research at Mirae, the country’s biggest seller of mutual funds, said in an interview in Seoul.
Spending by US consumers increased in November, the sixth time in seven months, government data showed last week.
The Federal Reserve repeated a pledge on 16 December to keep interest rates exceptionally low for an extended period and said the economy is strengthening.
US stock funds took in $11.1 billion last week, the most since June 2008, according to EPFR.