In just 11 weeks of calendar 2006, inflows into emerging market equity funds have shot past $20.3 billion -- the total inflows in the whole of 2005. In fact, last year was a record for fund flows as per data available with the Emerging Portfolio Fund Research.
Despite the abysmal performance of global markets in the most recent week owing to interest rate and inflation fears, all other fund groups, except US equity funds, received inflows in the week, according to the EPFR report for the week ended March 8.
While global bond funds had their best week of inflows since November 2004, for the emerging market bond funds the week proved to be a dampener.
The combined emerging market equity funds, tracked by the EPFR, set an annual inflow record in the latest week. While inflows in the week were the slowest for the year and were well off the year's weekly average, the new money has kept spirits high in the emerging markets. These funds have received $20.9 billion year to date.
While the Asian equity funds (excluding Japan) have received inflows mostly in the US dollar, the Latin America equity funds have got most of it in terms of percentage of assets. Investors' demand for Japan equity funds returned to its strongest in five weeks as these funds have sucked in nearly $3 billion this year, with Bank of Japan signalling an end to zero interest rate policy, the latest EPFR report said.
Flows into BRIC and single country funds investing in these four markets are responsible for about one-third of the inflow total but represent just 19 per cent of the total assets in the Emerging Market Equity Funds.
"I am bullish on this market and earnings are set to grow at a CAGR of 12-15 per cent over the next three years but the only concern is global liquidity rather than domestic liquidity." said Mihir Vora, head of equities, ABN Amro Mutual Fund.
Another fund manager sounded a word of caution: "Most of funds coming to emerging markets was borrowed in yen and, hence, it could face the consequences of an increase in interest rates by the Bank of Japan," he said.
As in the global scenario US Equity Funds have taken in $4.5 billion of net inflows this year due to strong job data. The European funds have only seen one week of outflows this year and have thus far taken in total net inflows of $4.3 billion. It was mainly the Pan- Europe equity funds, rather than country funds, that were responsible for the inflows.
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