Emerging market funds see an influx of new money

According to figures released by the Investment Management Association during September, investors’ appetite for Global Emerging Markets funds was particularly strong in August, outstripping demand for funds in all other major geographical regions.

Share prices in emerging markets rose over September as investors became more optimistic about the sustainability of the global recovery and, in particular, the US economy. Of the leading emerging markets, Brazil and India performed particularly well in US dollar terms.

Amid signs China’s economy is stabilising, the People’s Bank of China believes the country’s economic growth will be “relatively fast”. During the month, the central bank confirmed it intends to continue a “moderately easy” monetary policy, but admitted it needs to balance the need to maintain “steady and rapid” economic development with restructuring the country’s economy and managing expectations for inflation.

China’s currency remains contentious, with US Treasury Secretary Timothy Geithner saying the US will use all necessary resources to persuade China to allow its currency to appreciate. “The pace of appreciation has been too slow and the extent of appreciation too limited,” he added. However, during a visit to the US, China’s premier Wen Jiabao warned that “the problems faced by China-US economic and trade relations are structural contradictions that can only be solved step by step.”

Consumer prices in China registered their fastest growth in 22 months during August, rising by 3.5% year on year. For their part, retail sales rose by 18.4% year on year during August. China’s central bank believes that domestic consumption has to rise if China is to thrive in an increasingly demanding global arena.

In India, the central bank increased interest rates from 5.75% to 6% during the month as the country continues to combat considerable inflationary pressures. Meanwhile, Russia maintained interest rates at 7.75% for another month. Russia’s central bank believes the country’s inflationary risks remain relatively mild and consumer price growth is moderate, although policymakers also cautioned against the possibility of growing inflationary pressures towards the end of 2010 and beginning of 2011.

Drought remains a problem in Russia – and indeed is also proving a headache for Brazil. Brazil is the world’s leading producer of commodities such as coffee and orange juice, and is also a major exporter of ethanol, soya, sugar and beef. It is feared that severe drought will affect production and curb export activity, which would in turn push up prices elsewhere in the world.

http://www.sterlingfs.co.uk