EM inflows on the rise

Signs of a deepening recession in the US, Japan and Europe have prompted investors to pull money out of developed-market stocks.

Emerging-market equity funds, led by China, Brazil, India and Taiwan, attracted most of the cash that investors have been pulling from money-market funds as they seek higher yields, EPFR Global said.

The funds lured a total of $21 billion in the past 11 weeks as stocks rallied, while Europe, Japan and US saw combined outflows of $14.1 billion, EPFR, the Cambridge, Massachusetts- based research firm said in an e-mailed statement. Asia ex-Japan received $933 million in the week ended May 20, the most among emerging-market stock funds, bringing the total this year to $6.9 billion.

Signs of a deepening recession in the US, Japan and Europe have prompted investors to pull money out of developed- market stocks. Federal Reserve policy makers have projected the recession this year would be deeper than they forecast in January and estimated a slower rebound. Europe's economy contracted at the fastest pace in at least 13 years in the first quarter, while Japan's shrank by a record.

“Investors worldwide are clearly anxious to put their money back to work,” Brad Durham, EPFR's global managing director, said. They pulled out a net $78.2 billion from the relatively safe, low-yielding money-market Funds this year, EPFR said.

Developing Asia may expand 4.8 percent this year, according to forecasts by the International Monetary Fund, making the region's stocks attractive. China's economy, the world's third biggest, can “definitely reach” its goal of 8 percent growth in 2009, Xu Lin, director general of the National Development and Reform Commission said.

Stocks rally
The MSCI Asia Pacific Index of stocks is headed for a third weekly gain in four and has rallied 42 percent since closing at a six-year low on March 9, according to data compiled by Bloomberg. Nine of the 10 most-active currencies in Asia have strengthened versus the dollar this quarter, the exception being the Hong Kong dollar, whose value is pegged.

China received inflows for the eighth consecutive week, though the $273 million was the least in five weeks. Brazil took in $398 million, while India saw its second best week this year. Equity flows into Taiwan rose for an 11th week. Latin American Equity Funds got $587 million during the week, while total received this year stood at $3.2 billion, according to EPFR.

For developed markets, equity outflows from Japan, Europe and US funds continued, recording a net $389 million, compared with net inflows of $3 billion for bond funds, EPFR said.

Indian elections that gave a fresh mandate to the ruling Congress-led coalition and comments by Chinese officials reiterating their determination to accelerate the pace of helped attract funds into the region, EPFR said.

The authors are Bloomberg News columnists. The opinions expressed are their own.