Emerging Markets: Emerging Equity And Bond Fund Flows Rise

Investor: News

By Gordon Platt

Investor flows into emerging market bond funds passed the $5 billion mark for the year to date in the week ended March 10 after posting their biggest weekly inflow in more than a decade, according to EPFR Global.

Emerging markets continued to rally in early March, with flows into equity funds beginning to reflect increased optimism about the prospects for commodity prices and exports, EPFR Global says. There were positive flows into African regional funds for the 27th consecutive week, while flows into Russian equity funds hit a 20-week high.

Hunger for yield and the prospect of a resolution for Dubai World’s debt woes encouraged money to flow into high-yield and emerging market bond funds.

Asian equities are likely to outperform other global markets in the coming months, due to stronger earnings growth, says Andrew Pease, senior investment strategist for the Asia-Pacific region at Russell Investments. While price-earnings ratios in the region are high, Pease says they can be justified by the region’s stronger medium-term growth prospects.

Hong Kong is a preferred equity market in Asia because it is attractively priced relative to the rest of the region, Pease says. Hong Kong, like Singapore, is also expected to benefit from a recovery in export orders, he says.

Asia is a region of booms and busts, and there is a temptation for governments in the region to keep their currencies undervalued and to allow credit growth to expand for too long, Pease says.