“The broadest, most distinct theme of 2007 has been the record strong inflows into global and emerging-market equity funds,” says Brad Durham, managing director of EPFR Global, which tracks funds with some $10 trillion in total assets worldwide. “This trend has been very pronounced in the data.”
As fund flows have moved into emerging and global equity funds, they’ve flown out of U.S., European and Asian developed-country funds — since August.
“In the flows we followed through December 26, 2007, $40.8 billion went to emerging markets vs. $22.4 billion last year,” Durham explains. “That is quite an increase in the intensity of these fund flows. And, combined with other global flows, that’s a combined $77 billion for the funds and flows we track.”
For Durham and other financial experts, this represents an important shift in investor sentiment. “Investors are now comfortable with emerging markets as part of their core holdings and are looking for more geographic diversity,” he shares. “They have become considerably more comfortable with emerging markets because of the relatively strong economic fundamentals.”
Emerging markets, according to Durham, are generally “not saddled with complicated credit vehicles and their associated uncertainties, like the subprime woes.” Plus, they enjoy fiscal surpluses, massive foreign-exchange reserves, strong GDP growth and robust corporate earnings growth.