More money flows into emerging markets

Investors continued to move away from cash and into emerging markets in the first week of May, extending a pattern that emerged in late-March.

Equity funds in Asia ex-Japan, Latin America, Europe, Middle East and Africa (EMEA) and diversified global emerging markets posted combined net inflows of $3.6 billion in the first week of May according to EPFR Global. Excluding money market funds, which recorded net outflows of $1.57 billion for the week, fixed income funds absorbed another $2.67 billion in net inflows.

China remains a major driver of both sentiment and fund flows for the emerging markets asset class as its economy responds to aggressive lending by domestic banks, says EPFR Global. The Massachusetts-based data provider tracks more than $10 trillion in assets in traditional and alternative funds worldwide.

Although emerging markets funds generally fared better than ones invested in developed markets, there were exceptions. US bond funds maintained their record of absorbing fresh money every week year-to-date, while flows into global and Japan equity funds hit highs for 2009.

EPFR Global-tracked Asia ex-Japan equity funds posted the biggest net inflows among the four major emerging market equity fund groups for the second week running, taking in $1.62 billion in net inflows compared with $1.1 billion for global emerging market equity funds, $713 million for Latin America equity funds and $136 million for EMEA equity funds.

Equity funds focused on China, Taiwan and Greater China accounted for two-thirds of the week's flows into Asia ex-Japan equity funds.

Japan equity funds finally attracted some positive interest in early May as housing and employment data from the US and manufacturing and loan figures from China rekindled some optimism towards the prospects for Japanese exporters. Manufacturing inventories are also dropping back towards pre-crisis levels. The $164 million in net inflows these funds took in represents their best week since late September last year.

Hopes that a rise in pending house sales and a sharp decline in new jobless numbers will help US consumers pick up where they left off last year, and relief that the results of stress tests on major American banks are not as bad as feared, had a modest impact on US equity funds, according to EPFR Global.