Investors Return to Emerging Market Bond, Equity Funds

Emerging market bond and equity funds both experienced inflows for the first time this year in the week ending April 2, a further sign that optimism is growing toward developing world assets.

Investors plowed $2.44 billion into emerging market equity funds in this latest week, the highest amount since October 2013, Barclays said, citing data from fund-tracker EPFR Global.

Meanwhile in emerging market bond funds, investors poured $1.06 billion in, compared with outflows of $1.11 billion in the previous week.

"The price action and the mood may have turned on emerging markets," said Koon Chow and Durukal Gun, analysts at Barclays.

"But given the long period of outflows and emerging market growth having yet to rebound, we may need a couple more weeks of positive flow numbers to confirm this," they cautioned.

After a tumultuous start to the year, emerging market assets have made a strong comeback in recent weeks, encouraging investors to return. Currencies such as the Indian rupee and Indonesia rupiah have hit multi-month highs against the dollar.

In stock markets, the MSCI emerging market index is up 4.6% in the past month.

The crisis in Ukraine has receded and relative weakness in U.S. data has meant U.S. Treasury yields haven't risen as expected. That takes away a factor that caused a significant selloff in emerging markets in 2013.

"From the pure economic surprise index point of view, Q1 destroyed a lot of momentum in the U.S. rates uptrend. In a nutshell, there is a much higher threshold now, in terms of U.S. economic rebound, for emerging market assets to selloff significantly," said Luis Costa and Ishitaa Sharma of Citi in a note to clients.

Higher yields reflect lower prices.

Write to Clare Connaghan at [e-mail]

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