Huge flows into emerging-market funds in past week: Brazil’s second-biggest inflow ever; China, Taiwan, India and Russia also benefit

emergingmarketsNEW YORK (MarketWatch) — Emerging-market equity funds saw inflows of $4 billion in the week ended May 6, the largest weekly inflow since early December and the eighth largest on record, Merrill Lynch said Friday.

Buying of exchange-traded funds was mostly responsible, but investing in funds that take long-only positions also saw strong inflows, Merrill said. Long-only funds represent one-way bets from investors ready to embrace more risk.

Both the iShares MSCI Emerging Markets Index (EEM) and the Vanguard Emerging Markets Stock ETF (VWO) have rallied impressively, up 8% over the past week. That compares with a 5% weekly gain for the S&P 500 index (SPX).

Brazil, in particular, saw very large flows, garnering its second-largest weekly inflows on record, while China, Taiwan, India and Russia also saw big gains.
Merrill’s data show the pace of inflows into emerging-market funds has been strong and accelerating, totaling $14 billion over the past seven weeks.
For the year to date, the MSCI ETF is up nearly 26%, while the Vanguard ETF is up nearly 29%, far and away outpacing the 2.4% gain for the S&P 500.
Merrill Lynch said that its own emerging-markets trading indicator remains in “sell” territory but that this gauge continues to “be wrong-footed” by the big economic and financial policy stimulus being put in place in various emerging markets, as investors go increasingly for reallocation of assets into global equities.

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