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Emerging markets boom again

August 11, 2006 18:03 IST

Brad Durham, Managing Director of Emerging Portfolio Fund Research, EPFR, says that Emerging Market, EM, funds have seen inflows of $450 million last week.

He adds that flows to EMs have stabilised and are turning positive. Durham further states that Indian funds have seen inflows of about $50 million last week and they have seen inflows in three out of the last four weeks.

Excerpts from CNBC-TV18's exclusive interview with Brad Durham:

What did we see last week, specifically in emerging markets and in India?

In emerging markets, generally the flow seems to have stabilised in the second consecutive week and it looks like there are signs of flows turning positive again. Flows into all the emerging market equity funds that we track, about $250 billion in total assets, had inflows of about $450 million in the latest week, which was till Wednesday.

So that is the second consecutive week of net inflows, which was the first back-to-back week of inflows into emerging market equity funds since early May.

So I think that things have certainly stabilised with investor confidence in emerging markets.

Along with that, in India, the funds that we tracked have also seen inflows in actually three to four or in the last five weeks.

The most recent week had inflows of above $50 million into the Indian country funds that we track, which was about $13 billion in total assets. In terms of fund flows and liquidity, it looks encouraging.

How much further money do you think is waiting on the sidelines to come in, given the fact that there is still a lot of uncertainty prevailing ahead of the FOMC September gathering?

I think that there is a considerable manner of money in the sidelines. If you look at some of the data for flows into the money market funds and the strength in treasuries in recent weeks, there is a fair manner of increases in cash waiting in the funds that we track.

So I think that there is a fair manner of firepower out there as long as the geopolitical concerns start to defeat the growing confidence in emerging markets and some of the compelling valuations that investors are finding.

But I think that there has to be some continuing clarity in the global monetary policy and the series of rapid deceleration of global growth due to some concerns. But as long as it doesn't have a major material impact on emerging market earnings growth and GDP growth, things will remain relatively positive.

About the India funds in specific, could you tell us whether the redemption pressures have eased and which specific funds might be seeing some inflows now?

It is not necessarily any funds in particular that are seeing more flows than others. Among the funds that we track, which are some of the bigger India country funds, it would be the HSBC Global Investment Fund India, an equity fund, which is about a $3-4 billion fund. Typically, when there are inflows into India country funds, that fund tends to get a fair proportion of it.

Tell us where does India stack up in the emerging markets pack? Do you think it is likely to get a larger share of fund flows into emerging markets, since it is not an export; a US dependent economy in any sense right now?

I think that certainly plays into its favour. The fact that some investors and fund managers see India as a relatively defensive market should be held for, but the flip side of that is that India has also been seen as one of the most expensive emerging market in terms of valuations.

With price to earnings multiples on a forward basis about seventeen times; it is truly about the second or third most expensive market after Chile and the Czech Republic.

But with earnings growth of about 30% or so in 2006, it also tends to generate stronger earnings growth in most of the emerging markets.

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