New York-based consultancy Strategic Insight reports mutual funds domiciled in Asia captured net inflows of $35 billion during the second quarter of 2008, despite market turbulence that has damaged net asset values across the region.

The numbers mask the reality that some fund managers are benefiting at the expense of others, but in aggregate, the Asian funds industry has enjoyed a strong first half, belying the nervousness now creeping into conversations with industry executives in Hong Kong and other regional capitals.

It confirms, however, separate discussions AsianInvestor has had with global custodians in Hong Kong and Singapore, who say business has been strong on the back of large net inflows.

Asian investors have added $80 billion to local funds and an estimated $20 billion to offshore funds (such as Luxembourg-listed Sicavs) year-to-date, says Jag Alexeyev, senior managing director at Strategic Insight in New York.

The big moves were made in the first quarter, with activity slowing in the second. But net inflows continue.

Korean equity funds have gained $14 billion year-to-date; $4 billion of which came in the second quarter, to the benefit of local managers such as Mirae Asset and KB Asset Management.

Indian equity funds have also done well, raising $8 billion in new assets this year. Funds in Southeast Asia and Taiwan have added $6 billion.

The worst pain has been in China, where the funds industry has suffered net redemptions of $5 billion in the second quarter. (Strategic puts a soft spin on this, saying the retreat could have been much worse considering the industryÆs youth, the presence of novice investors, and the average decline of 20% on equity fund prices this year.)

Across the region, money market funds have done well, taking in about $24 billion of new assets. And in Japan, global bond funds continue to do well. The Japanese equity market was a loser, with $2 billion of redemptions, but big income bond funds managed by the likes of Kokusai, Nomura, Nissay and DaiwaÆs asset management arms, have pulled in big numbers. In fact, Kokusai Asset ManagementÆs famous Global Sovereign Bond Fund (sub-advised by Western Asset), pulled in $1.5 billion of net inflows in the second quarter, on top of another $1.2 billion in the first.

Emerging-market debt funds also continue to sell well, regionally and in Japan; JPMorgan Asset ManagementÆs EDM fund is on track to raise $500 million in Japan this year.

Certain niche products continue to sell well. Surprisingly demand has been strong in markets such as Korea and Hong Kong for China-focused equity funds (particularly exchange-traded funds); presumably many investors have taken a longer-term view and are buying when ChinaÆs markets are becoming cheaper.

And Middle East and frontier-market strategies are doing well; in Japan, Nomura Asset Management and SG Asset Management together raised $1.1 billion in the second quarter for Middle East-themed investment products.

The funds industry has also enjoyed a decent year in the United States: June alone saw $6 billion of net inflows to equity funds, and $5 billion to bond funds.

But Europe is a genuine disaster. Funds suffered $100 billion of net outflows just in June, and reached $280 billion of redemptions year-to-date, excluding money market programmes, says Alexeyev.

The rosy numbers in Asia reflect the regionÆs resilience, illustrating that Western fund managers are still keen to open shop in the region, he adds.

Smile.