Strong fund flows into emerging markets on positive earnings outlook

In the last week, fund inflows into equities in emerging markets have reached the highest level for almost two years. Investor interest has been prompted by evidence of economic health in core developing economies, while the US economy is slowing.

Core developing economies, such as China, India and Russia, for example, all expanded by more than 7.5% in the second quarter, increasing demand for core commodities. At the same time, better pricing for global mineral and agricultural commodities has boosted revenue to resource-rich emerging economies. As financial stability has improved, some of the risks that investors once associated with emerging markets appear to have dissipated. Many emerging markets are undergoing heavy investment in infrastructure; rising domestic consumption also offers growth momentum.

Chris Palmer, Gartmore’s Head of Global Emerging Markets, highlights the opportunities for investors to achieve returns that cannot be matched in mature markets. “There is near term risk but is doesn’t dereail the story long term, as we still believe emerging markets as a likely place for investors to experience 15 to 20% earnings growth. It’s a really rich hunting ground for companies with solid prospects.” In contrast, a recent Reuters survey indicated that earnings growth for US large cap names is expected to be just 3.3% in the third quarter of 2007.

Gartmore’s Global Emerging Markets Desk currently manage assets in excess of $5bn. This includes two regional funds – the Gartmore SICAV Latin America Fund and the Gartmore China Opportunities Fund – which have each more than quadrupled to over $1bn in value respectively since Chris beame Head of Global Emerging Markets over 15 months ago. Chris also controls broad-based emerging market vehicles and two hedge funds under Gartmore’s AlphaGen brand.

The Gartmore Emerging Markets Opportunities Fund has returned 58.3% over the past year, and ranks in the first decile over 6 months and 1, 3 and 5 years. The Gartmore SICAV Emerging Markets Fund and Gartmore SICAV Latin America Fund have returned 52.9% and 56.1% respectively over the past 12 months and both rank in the top decile over six months and 1, 3 and 5 years. Meanwhile the Gartmore China Opportunities Fund has returned 110.6% over one year and ranks in the top decile relative to its competitors over 6 months, 1, 3 and 5 years.