Growth prospects lure EM funds
Fund flows to emerging market economies surges on early signs that global recession is easing
Emerging-market equity funds received net inflows in the past week, rebounding from the biggest weekly outflow of the year, on speculation a global economic recovery will boost demand for commodity exports.
Investors added a net $381 million to emerging-market equity funds in the week ended August 26, according to Cambridge, Massachusetts-based EPFR Global. China stock funds received a separate $480 million in the period, recovering from their worst week since the first quarter of 2008, as investors projected higher exports to developed markets,
EPFR said. Latin America equity funds took in $218 million.
“Emerging market equity funds are likely to continue to attract more inflows,” said Greg Lesko, who helps manage $625 million as head of equity at Deltec Asset Management in New York. Emerging-market gains this year have been “driven by what’s going on in places like China, but most people feel that China can’t carry the world by itself. In order for the rally in commodities prices to be sustainable, the rest of the world has to recover and buy commodities too.”
The MSCI Emerging Markets Index of 22 developing nations has surged 50 percent this year as signs the global recession is easing boosts demand for higher-yielding assets and commodities. Central banks around the world have slashed borrowing costs to spur lending, while governments including China and the US enacted $2 trillion of stimulus packages to revive spending by consumers.
Economic growth The German and French economies both expanded 0.3 percent in the three months through June, unexpectedly returning to growth and adding to signs the region is emerging from the deepest recession in more than six decades. In the US, purchases of new homes jumped more than forecast in July. China, the world’s third-largest economy, grew 7.9 percent in the second quarter, recovering from the slowest growth in almost a decade three months earlier.
The recovery in the German and French economies and U.S. home sales “allowed hope for exporters to offset lingering doubts about the durability of recent Chinese economic growth,” EPFR said.
The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials has gained 32 percent this year, boosted by a rally in crude oil. Oil, the biggest export from Russia, Mexico and Venezuela, is up 63 percent so far this year.
The MSCI Emerging Markets Index rose 0.9 percent to 851.46 in New York, leaving it up 0.7 percent this week. Russia’s Micex index added 2.9 percent, while Hungary’s Bux index climbed 1.7 percent.
The authors are Bloomberg News columnists. The opinions expressed are their own