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Emerging-market stocks hit highs

Cash inflows mount as investors appear to expect strong growth in many developing nations to continue.

July 10, 2007|From Times Staff and Wire Reports

Money continues to pour into emerging-market stocks, defying some analysts' expectations for a pullback in those shares.

Records were set Monday by key stock indexes in Egypt, India, Indonesia, South Africa, South Korea and Turkey, among other markets.

The iShares MSCI Emerging Markets fund, an exchange-traded fund popular with U.S. investors, surged 1% to $139.64 a share. It's up 22% this year, compared with an 8% rise for the U.S. Standard & Poor's 500 index.

Strong economic growth in many developing nations in recent years has helped drive stocks in those markets sharply higher. Investors appear to be betting on more of the same in the second half of this year.

South Korea's central bank today raised its 2007 economic growth forecast and said the expansion would accelerate next year, aided by exports and a recovery in consumer spending.

The composite index of the Korea Exchange rose 1.2% to a record 1,883.59 on Monday and added 0.3% early today, despite expectations that the central bank's growth forecast could mean higher interest rates. The index is up 31% this year.

In Asia, "The whole region is seeing a lot of very positive economic news," said Leslie Phang, who helps manage $1 billion at Commonwealth Private Bank in Singapore.

India's Sensex stock index rallied 0.6% to a record 15,045.73 on Monday. The nation's currency, the rupee, rose to a nine-year high against the dollar, a sign that foreign money was flowing into Indian assets.

"The capital flows are robust as there is a deep interest in Indian assets," said Vikas Babu, a currency trader at Andhra Bank Ltd. in Mumbai. "That trend is unlikely to reverse immediately."

Turkey's main stock index, the ISE-100, jumped 2.8% to a record 51,281.85. The government said industrial production rose 5.2% in May from the previous year as exports hit record levels.

Rallies in commodities including oil, copper and soybeans in recent weeks have helped to buoy emerging market stocks, because many developing countries, including Brazil, are big commodity exporters.

Brazil's Bovespa stock index hit a record 56,443.73 on Friday and is up 26.9% this year. The market was closed for a holiday Monday.

Some U.S.-based financial advisors say they've been taking profits in emerging-market stocks and funds in recent months, fearful that a sell-off is overdue. Emerging markets are notoriously volatile.

But a recent report by Merrill Lynch & Co. analyst Michael Hartnett suggested that caution on the part of investors in the U.S. and other developed countries may be superseded by demand for stocks by local investors in emerging markets.

Given rising wealth levels in many of the countries, stronger local demand for stocks "is a trend we expect to see more of in the second half of the current bull market," Hartnett said.

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Bloomberg News was used in compiling this report.

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