Bloomberg.com reporting:
“Our belief is that the ‘new optimal’ balance sheet of Wall Street will include larger emerging market positions in equity and debt” because they are fast growing and earn a higher return, Hintz wrote. Banks will also emphasize “a large government and sovereign book” because such holdings require little capital even if they earn low returns, he wrote.
Check out this chart. Risk appetite has been growing and growing for emerging markets bond funds for 2010.
This Is The Emerging Market Bond Bubble
Emerging Markets Bond Fund Assets
Here is the Morningstar Direct Fund Flows Update research for October 2010.
PDF LINK
Outside of U.S. equities, every asset class had positive inflows. International-stock funds had their best month since April, although this owed primarily to continued strong flows into diversified emerging-markets equity funds. Balanced funds also turned in their best month since April with $2.3 billion in positive flows. As has been the recent trend, investors embraced the two poles within the group–world-allocation and conservative-allocation funds. BlackRock Global Allocation led the world-allocation category with nearly $1 billion in inflows.
Investors continued to abandon money market funds, removing $16.6 billion. However, even with paltry yields, the exodus has slowed during the past six months. Investors have withdrawn $78 billion since then, versus $483 billion in redemptions the previous six months. Nevertheless, the shift in market share is significant. Over the past year, money market funds’ share of total assets has dropped to 25.7% from 33.4%.
Demand for taxable-bond funds remains steady with $20.6 billion in contributions. Intermediate-term bond funds continued to lead, the way with $5.6 billion in inflows, but short-term bond funds have been supplanted in the rankings by world-bond and multisector bond funds, which absorbed $3.7 billion and $3.1 billion, respectively. This likely owes to ongoing desire for diversification and a taste for greater credit risk.
How quickly would emerging markets investors bail if their portfolio holdings started hitting their ‘uncle points’? Just a thought.
In case you missed Mark Mobius thoughts on emerging markets.
For now, capital inflows in emerging markets are being counterbalanced by “hundreds of billions” of funds being raised by new stock sales and secondary fund raisings, Mobius said.
If funds keep pouring in and companies that have raised cash begin using it to buy assets, prices will be pushed up in a “snowball effect,” he said.
The worst-case outcome is a bubble that bursts after prices rise too fast, with “people getting hurt” because they were too optimistic, Mobius said.
If the U.S. government’s quantitative easing plan fails and fiscal tightening follows, Western economies may be back into recession, Albert Edwards, Societe General SA’s London-based strategist, wrote in a report yesterday. That will trigger a 60 percent drop in equity prices, he said.
Mobius said none of these outcomes is likely in the short term and his funds are fully invested. “I’m pretty optimistic,” he said. “I don’t see any risks any time soon. These things can last for years and years.”
Pete 11:59 AM on November 29, 2010 Permalink | Log in to Reply
Forget Ireland: All Of Europe Is An Economic House Of Horrors
“Ireland finally got its bailout this weekend, at a cost of an average interest rate of 5.8%.
The costs might be far bigger for the eurozone, however, with markets now turning toward Portugal and Spain.”
Read more: http://www.businessinsider.com/now-that-ireland-is-finished-this-is-the-awful-state-the-eurozone-is-left-in-2010-11##ixzz16gwKFS00