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Emerging ETF Flows to Grow as Shares Surge, Shaoul Says

The second-biggest exchange-traded fund tracking emerging-market equities will see more inflows after the amount of shares outstanding reached a record last week, according to Marketfield Asset Management LLC.

Outstanding shares in the iShares MSCI Emerging Markets Index rose to an all-time high of 1.11 billion by Dec. 28, according to data compiled by Bloomberg. The ETF jumped 2 percent to $45.23 in New York, the highest level since August 2011 and pushing its market value to $50 billion.

Developing-nation stocks are rallying as a deal between U.S. lawmakers to avert spending cuts and tax increases bolsters the outlook for the world’s largest economy. The 21 nations featured in the MSCI Emerging Markets Index of 821 stocks send about 17 percent of their exports to the U.S. on average, data compiled by the World Trade Organization show.

“This really demonstrates the renewed determination of U.S. investors to maximize exposure to these markets,” Michael Shaoul, chairman and chief executive officer of Marketfield, which oversees $4.4 billion including emerging-market assets, said in a note e-mailed today. “Given these flows we would have expected a strong first few sessions for emerging markets in 2013.”

Inflows may start to subside by the second week of this year leaving the market vulnerable to a retreat, said Shaoul, whose MainStay Marketfield Fund returned 14 percent in the past year and beat 96 percent of its peers, data compiled by Bloomberg show.

Vanguard ETF

The iShares MSCI emerging-markets ETF has $48.2 billion in total assets, trailing the Vanguard MSCI Emerging Markets ETF’s $59.7 billion, according to data compiled by Bloomberg. The Vanguard ETF rallied 2.1 percent to $45.47 today, the strongest close since Aug. 3, 2011.

Investors are “extremely bullish” on emerging markets over the medium term, Benoit Anne, the head of emerging-market strategy at Societe Generale SA in London, wrote in a note e-mailed today. About 90 percent of clients are bullish on developing-nation markets globally over the next three months, the most ever, Anne said, citing a December investor survey.

“Near-term uncertainties did not derail the fundamental view,” he wrote. Investors will “probably turn even more bullish, now that the U.S. fiscal cliff problem has been addressed.”

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