June brings good times back for emerging markets

Renewed buying interest in emerging markets continued with emerging market equity funds attracting inflows for the fourth straight time in the week ending June 22.

However, investors pulled out money from emerging market bond funds for the first time since early May, according to a data released by Emerging Portifolio Fund Research (EPFR).

The combined emerging market equity funds, tracked weekly by EPFR, registered $239.1 million of inflows during the week, increasing year to date total inflows to $3.25 billion. This is way above the last year's total inflows of $2.78 billion.

The global emerging market (GEM) equity funds enjoyed their fourth consecutive strong week of inflows, posting $84.6 million of new money. Asia equity funds (ex-Japan) recorded $47.5 million of inflows, of which $47.4 million came to the magnetic India equity funds.

Latin America equity funds posted the week's best performance among all fund groups tracked, returning 2.64 per cent and attracted $44 million of net investor contributions.

EMEA equity funds added $62.9 million in the week, bringing their impressive year to date total to $2.6 billion of net inflows, or 18 per cent of their total assets.

The global/ international equity funds, which have a 45 per cent weightage in Europe, 23 per cent in the US, 13 per cent in Japan and also hold an average 7.8 per cent weightage in emerging markets, got back on track with $363.5 million of inflows in the week.

Investors had snubbed these funds in the previous two weeks. Year to date these funds tracked weekly with $332 billion have taken in $10.1 billion in inflows. The funds tracked monthly with $1.07 trillion in total assets had attracted a healthy $30.9 billion till May end.

"These funds are as important a source of liquidity to emerging markets as are dedicated emerging market equity funds," says Brad Durham, managing director, EPFR.

"The implied contribution of these funds to emerging market equities so far this year of $2.26 billion is nearly that of all dedicated emerging market equity funds combined."

The positive investor sentiment in June towards emerging markets equities is in contrast to their May preference. The full extent of May damage on emerging market equity funds has become known with the release on June 23 of EPFR's monthly fund flow data (tracking $209.5 billion compared to the $146.8 billion tracked on a weekly basis).

On monthly reporting, EM equity funds saw $2.66 billion fly out during the month as investors lost their appetite for risk and drew back from EM equity funds. The outflows, however, were still not as severe as the $3.88 billion of net outflows from these funds in May 2004.

Foreign investors showed a little more interest in Japan equity funds this week, placing $16.7 million with these funds. Japan funds have seen $270.1 million of net outflows on the year.

European Central Bank murmurings of a possible rate cut to stimulate flagging growth in the eurozone took the steam out of the euro, and also may have turned investors off from Europe equity funds. These funds suffered $132.5 million of outflows during the week.