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Net inflows into emerging market funds worldwide nearly doubled to $40.83 billion last year compared with $22.44 in 2006, according to data from Massachusetts-based EPFR Global.
Fund flows to emerging markets surged from July onwards, after the fallout from the US subprime mortgage crisis. The US credit crunch turned sentiment around for emerging markets, which was suddenly viewed as a safe haven following years of being considered a high-risk market and generally experiencing outflows because of that perception.
Among the emerging market funds, those that invest globally posted a net inflow of $15.22 billion last year, nearly four times the $4.21 billion in net inflows in 2006. Net inflows to emerging market funds that invest in Asia-Pacific ex-Japan were nearly flat at $16.40 billion, while those that invest in Latin American tripled to $10.15 billion.
Brad Durham, Massachusetts-based global managing director at EPFR Global, notes that year-end data tends to be shaped by ôyear-end book-keeping, window dressing and maybe some initial asset allocation positioning for the coming year.ö
He stresses that the turnaround in 2007 was unequivocal, referring to the broad rerating of emerging markets assets that has prompted a big rotation out of developed markets funds as investors seek to increase their exposure to places like Russia, Brazil and Korea, a trend he expects to continue this year.
While it was Latin America equity and Brazil country funds that led the charge into the fourth quarter, funds that invest in global emerging markets as well as Brazil, Russia, India and China (Bric), will likely keep the momentum going into 2008, says Durham.
Performance-wise, Latin America equity funds were the best of the major emerging market fund groups last year, posting a collective portfolio gain for the year of 60%, while Europe, Middle East and Asia equity funds brought up the rear with a 26% gain. Among the smaller fund groups Brazil, China and Turkey country and Africa regional funds stood out with gains of 96%, 75%, 70% and 68% respectively.
EPFR Global provides fund flows and asset allocation data to financial institutions around the world, tracking both traditional and alternative funds domiciled globally with $10 trillion in total assets.
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