Peru, China and Sri Lanka lead 10 of the world’s best performing stock markets. Investors funneled $32 billion this year

By Shiyin Chen, 24th July 2009, Bloomberg.com

Emerging-market equity funds drew $2.6 billion in the week ended July 22, boosted by optimism that U.S. demand for exports will recover, EPFR Global said.

The inflows into emerging-market stock funds were the most since the period ended June 10, the research firm said in a statement yesterday. Global emerging market equity funds attracted $1.08 billion, while those investing in Asian excluding-Japan shares took in $973 million.

Investors have funneled almost $32 billion into emerging market stock funds this year, helping the MSCI Emerging Markets Index to a 45 percent rally. All 10 of the world’s best- performing stock markets belong to developing nations, with Peru, China and Sri Lanka posting the strongest gains.

“Flows into emerging market equity funds rebounded during the third week of July as optimism about a recovery in U.S. demand helped many individual equity markets gain between 3 percent and 8 percent,” EPFR said.

The MSCI Emerging Markets Index today added 0.3 percent as of 5:20 p.m. in Singapore, poised for its highest close since Sept. 25.

U.S. stocks rallied this week, with the Dow Jones Industrial Average topping 9,000 yesterday for the first time since January, after EBay Inc., Ford Motor Co. and AT&T Inc. posted earnings that beat analyst estimates.

Rebounding exports and increased household spending helped South Korea’s gross domestic product jump 2.3 percent in the fist quarter, data released by the Bank of Korea today showed. That’s the fastest pace in almost six years.

China, India

South Korea’s Kospi index rose 4.3 percent this week. In China, the Shanghai Composite is added 5.7 percent increase, while the Hang Seng China Enterprises Index, which tracks the H shares of Chinese companies in Hong Kong, has rallied 7.5 percent, Asia’s best performance. India’s benchmark index is set for a 4.2 percent gain this week, extending a 9.2 percent advance last week.

“At the moment, I’m still positive on China because it is one of the two countries in Asia, including India, that will give us GDP growth of 8 percent or more,” Daphne Roth, head of Asian equity research at ABN Amro Private Bank in Singapore, said in an interview with Bloomberg Television today.

Funds investing in the so-called BRIC nations of Brazil, China, India and Russia added $2.1 billion for an 18th straight week of gains, EFPR said. China funds posted the largest gains, adding $243 million, while Indian funds attracted $148 million. Mexico funds also posted their strongest weekly inflows since June 2008, gaining 7.2 percent, the research company said.

Equity funds absorbed a total $3.44 billion while fixed income funds had a “rare” week of inflows, attracting $3.98 billion, EPFR added.

“The outperformance of China and emerging markets in recent months demonstrates that decoupling survived last year’s episodes,” Jonathan Garner, Morgan Stanley’s chief Asian and emerging markets strategist, wrote in a note yesterday. “When investors last believed in decoupling back in 2007, we saw substantial hot money inflows into China. That has started to resume.”

To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net