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Emerging Markets are hot again! Since the beginning of April, investors have poured in $4.2 billion in iShares MSCI Emerging Markets ETF (EEM - ETF report), making it the top asset gainer for the period.

Among single country ETFs, India ETFs have seen huge investor interest this year, while Indonesia, Philippines and South Africa also saw asset inflows. On the other hand, China funds have remained out of favor this year.

So, what happened? Most emerging markets were battered last year as foreign investors rushed for exits with the start of taper talk.

The trend reversed this year with investors returning to emerging markets as they realized that interest rates in the developed world were not going up as earlier feared.

But that’s not the only reason; there have been a number of other positive developments that resulted in investors’ recent enthusiasm. In many cases, politics/election hopes have been a major factor.

Indian stocks and the currency have been euphoric on hopes of a new pro-business, reform-friendly government led by Narendra Modi (election results due tomorrow). Small-cap India ETF (SCIN - ETF report) has soared more than 30% in the past 3 months.

Indonesian voters are expecting a win for the opposition party--led by Joko Widodo--who has a reputation for effective governance. Brazilian stocks have risen as the voter support for Dilma Rousseff has been declining.

Macroeconomic fundamentals also appear to be improving as some of the measures taken to combat inflation and narrow down current a/c deficit have been successful.

Do you think emerging markets can continue to surge? Are you investing in emerging markets this year; and in broader or single country funds or in EM stocks?


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