Emerging-market equity fund inflows slowed in the week ending Dec 16, with 2010 poised to be a more "testing year" amid waning stimulus measures worldwide, according to EPFR Global, a Cambridge, MA-based advisor to financial institutions around the world.
Net inflows of $571.4 million added to more than $75 billion in developing-nation equity funds this year, set for a record, EPFR said in a statement. Funds investing in global emerging markets, Asia excluding Japan, Latin American and commodity stocks as well as the US, global and high-yield bonds may all set new highs this year, according to the statement.
The MSCI Emerging Markets Index slipped for a fourth day, falling 0.5 percent to 950.21 in New York on Friday. The gauge has rallied 67 percent this year, rebounding from last year's record 54 percent slump. Developing nations made up 12 of the best-performing stock indexes this year as stimulus measures from China to Brazil helped bolster a recovery in economic growth.
"Looking at the emerging markets, there is really pretty good growth there," Jim McCaughan, chief executive officer of Principal Financial Investors, said in a Bloomberg Television interview from Hong Kong. "There are maybe two things that I would point to that are sources of instability in the next 12 months. The US is no longer as big an importer as it was, so East Asia has to reorient its economies more into their domestic economies away from purely export-led growth, and secondly, commodities."
The extra yield investors demand to own emerging-market bonds over US Treasuries slipped 7 basis points to 3.02 percentage points on Friday, according to JPMorgan Chase & Co's EMBI+ Index. Most developing nation currencies fell against the dollar, led by a 0.7 percent decline in the Chilean peso.
The Federal Reserve this week repeated its pledge to keep interest rates "exceptionally low" for "an extended period" and said the economy is strengthening.
Shares fell in China last week after the government scrapped a tax break on property sales after the fastest rally in property prices in 16 months reinforced concern that record lending and a $586 billion stimulus package may lead to asset bubbles.
Asia excluding Japan equity funds attracted $301 million in the week and GEM funds received $404 million while net redemptions from Emerging Europe, Middle East and Africa reached a six-week high, EPFR said.
Latin America stock funds also posted outflows for the second time in three months after Standard & Poor's cut Mexico's credit ratings on Dec 14.
"Looking ahead, liquidity remains ample and risk appetite healthy, given low interest rates in the developed world," Aberdeen Asset Management Plc said in its monthly global emerging markets commentary released on Friday.
"Emerging markets are thus likely to remain well supported in the short term, though valuations are starting to appear more expensive."
