Fund Flows Highlight EM Decoupling

EM equity markets are benefiting from a funds exodus from the developed world, according to flows tracker EPFR Global. LatAm dedicated equity funds saw fresh cash inflows in the week to September 5, while all of the major equity and bond fund groups tracked by EPFR that are geared primarily to developed markets posted net outflows. Investors appear to be putting their faith in cash and EM. “This is proof, if it was needed, that investors and fund managers are now judging emerging markets on their own merits rather than seeing them as a tail wagged by the US and Eurozone economies,” says EPFR MD Brad Durham. “In addition to the fact these markets are now getting some of the safe-haven flows, we’re seeing a shift to quality within the asset class,” he adds. The quality hunt is focused on Asia, whose funds ex-Japan, saw $1.25bn in flows, mainly for money market and energy sector focused pools of money. They have posted a collective year-to-date gain of 30.7% versus 6.3% for global equity and a 5.4% loss for Japan equity funds. Optimism about emerging Asia is boosting commodities and thereby helping LatAm equities. Year-to-date flows into these funds are now double last year’s total, although their performance gain of 26.4% lags the 46.5% these funds posted for all of 2006. Resource-rich Brazil, which has a 59.1% weighting among regional funds, continues to drive this fund group, says EPFR. Brazil country funds absorbed fresh money for nine of the 11 days ending September 4 as investors continue buying into its declining interest rates and accelerating growth.