Emerging markets continue to take in new money

Investors continue to favour emerging markets despite fears that valuations may be running ahead of fundamentals.

Despite fears that valuations have run ahead of fundamentals in many cases, EPFR Global notes that emerging market equity funds continued to attract large amounts of fresh money during the second week of May "as the furore over swine flu faded to a whisper".

Those funds tracked by EPFR Global took in another $3.5 billion in net inflows during the week ending May 13, extending their current winning streak to 10 weeks and total net inflows of $18.6 billion since the week of March 11. Their fixed income counterparts,meanwhile, recorded inflows for the fifth week in a row. Massachusetts-based EPFR Global tracks more than $10 trillion in assets worldwide.

For the third week running, Asia ex-Japan equity funds posted the biggest inflows among the four major emerging markets equity fund groups, absorbing a net inflow of $1.9 billion, with the diversified global emerging markets (GEM) equity funds taking in a net $1.18 billion. Latin America equity funds recorded a net inflow of $350 million, and Europe, Middle East and Africa (EMEA) equity funds recorded a net inflow of $145 million.

Although flows into China equity funds remained strongly positive, daily data showed the amount they received declining every day between May 7 and May 12 as investors digested weaker than expected export data. Taiwan equity funds, meanwhile, had a net inflow of $375 million -- their best showing in terms of percentage of total assets, over 11%, since the fourth quarter of 2005 -- as investors bet on the country's technology plays and its improving relationship with mainland China.

The Brics (Brazil, Russia, India and China) theme, which fell out of favour in the middle of last year, continued its revival with Bric equity funds posting inflows for the ninth time in the past 10 weeks, during which time the funds have received nearly all of their year-to-date net inflows of $686 million. Funds geared to the individual Bric markets also took in fresh money.

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