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Monday, December 18, 2006

Emerging Markets On The Up And Up

Well emerging markets are certainly rising again, and at a pretty hefty rate. This is, of course, pretty significant, and one of the reasons why I think India will see an investment boom next year (which means I pretty much disagree with this piece from Credit Suisse, since I think it will be the growth of investment rather than consumption in India which will be the big news in 2007).

Curiously Brad Setser is now using the expression savings glut (as in "And as China current account surplus has risen, it clearly become a big contributor to the global savings glut" - and this in a post specifically about Bernanke, has he finally crossed the Rubicon I ask myself):

Investors in emerging markets added more money to stock funds last week than at any time in seven months after record-breaking share rallies from China to Brazil pushed inflows for 2006 past last year's all-time high.

Funds investing in shares of developing countries attracted $1.65 billion more than they lost from redemptions in the week ended Dec. 13, figures from Emerging Portfolio Fund Research showed. The net fund inflow was the most since the weekly period ended May 10, when they drew $2.86 billion.

Investors have taken renewed interest in emerging-market funds, as faster economic growth and a boom in commodities demand propelled a rebound in shares of developing countries.

The Morgan Stanley Capital International Emerging Markets Index on Dec. 5 climbed past a record of 881.52 set on May 8. Today, the measure added 0.6 percent to 891.76 as 3:28 p.m. in New York.

The rally has helped the index recover all its losses after a 25 percent swoon in 26 days between May and June sent the measure to its 2006 low. Brazil, Russia, India and China, the so-called BRICs markets, have led the advance, with share indexes in each country setting records in the past two weeks.

The H share index of Hong Kong-listed Chinese companies that foreign investors can freely buy and sell has climbed 69 percent this year, while the dollar-denominated RTS Index has jumped 65 percent. In Index, the Sensitive Index has gained 45 percent and Brazil's Bovespa index has added 41 percent in dollar terms.

Among country funds, China-related funds attracted the most buying, adding more than $500 million in the week, according to Emerging Portfolio, a Cambridge, Massachusetts-based firm that tracks about 15,000 funds worldwide with $7 trillion in assets.

For the year, China funds have taken in about $9.5 billion more cash than they have paid out this year, almost half the total for all emerging-market stock funds and nearly quadruple the full-year record of $2.45 billion, set in 2003.

With about two weeks remaining in 2006, the funds have taken in $20.8 billion in a net basis, exceeding the record $20.3 billion they attracted in all of 2005. The amount is still less than the $32.9 billion the funds had attracted earlier this year, before the May-June slide caused investors to withdraw as much as $18 billion from the funds, on a net basis.

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