Emerging market funds see $1.32 bn inflows in 2 weeks

Emerging markets, especially Asia, continued to attract inflows in the first two weeks of 2004.

According to EmergingPortfolio.com Fund Research, in the first two weeks of 2004, emerging market funds witnessed $1.32 billion of inflows with $789.7 million going into Asia, excluding Japan, equity funds.

Of this, $273 million was placed with equity funds investing in China, while nearly $200 million flowed into India country funds.

Ayaz Ebrahim, director and chief investment officer, equities, Asia-Pacific (ex-Japan) of HSBC Asset Management (Hong Kong), said, "The key drivers to investing in Asia (including India) will be unlocking shareholders' value through value creation."

Countries such as India have reached a position where their fiscal situation is manageable and forex reserves are healthy. He said there was no chance of a bubble building up in the Asian region.

According to EPFR.com, which tracks emerging market portfolios, "Investors contributed a net $248.7 million into global emerging market equity funds in the two weeks ending January 14, $132 million in Latin American equity funds and $158.6 million in funds investing in emerging Europe, Middle East and Africa (EMEA)."

The Morgan Stanley Capital International Emerging Market Fund index finished year 2003 up by 52 per cent compared with the MSCI World index which gave a return of 31 per cent.

Investors injected record amounts into emerging market funds in 2003 due to a number of factors. In fact, the emerging markets have outperformed developed markets for the fourth consecutive year.

Ebrahim said in all these economies, the gross domestic product growth rate was being translated into earning growth.

"Emerging markets are highly cyclical and are regarded by portfolio investors as a leveraged play on global economic recovery, especially as monetary policy has eased and economies are enjoying domestically-driven growth throughout the emerging markets worldwide," said Brad Durham, a managing director at EPFR.

Compared to developed economies, including Japan, valuations in the Indian markets were still attractive, Ebrahim said.

"You get stronger economic growth, lower equity valuations, and substantial earnings growth in the emerging markets universe. Asia's fiscal and current account surpluses have impressed investors, Brazil's pension and tax reform has led to anticipation of a sharp growth in 2004, and rising commodity prices have been supportive of emerging markets' performance and fund inflows," Durham said.

Ebrahim said some of the restrictions on foreign investments have been lifted and "foreign investors have access to companies which are growth drivers", he said. In this respect, countries like India stand out, he said.

Asia, excluding Japan, equity funds have attracted net inflows of around $6.8 billion year to date, a gain in assets due to inflows of 44 per cent.

Inflows in 2003 were more than double than that of the previous record year for inflows (in 1996 these funds received $3.20 billion of net inflows).

The Asia, excluding Japan, equity funds tracked by EPFR have assets of more than $40 billion after starting the year with just $22 billion.

Latin America equity funds attracted $461.2 million of inflows year-to-date through mid-December.

Year 2003 was the biggest for inflows into the Latin America equity funds since 1997, when $870 million was received. These funds now hold more than $5 billion in assets.