Global money is heading back to emerging markets. Having sought refuge in safe assets like U.S. dollars and treasury bonds and the Japanese yen following the global financial crisis, global capital is now heading back to China, Taiwan, Korea and Russia. The weakness of the U.S. dollar and rising raw materials costs are believed to be the main reasons behind this trend.

The U.S. government and the Federal Reserve Board have injected close to US$1 trillion to stimulate the American economy and help it emerge from the financial crisis. The result was a drop in the dollar, prompting global money to head for stocks especially in countries rich in oil and other resources such as Russia and Brazil, where it has raised fears of overheating.

But some analysts say this could be a temporary phenomenon caused by increased liquidity in various countries.

◆ Global Funds

Global investment funds have been net investors in emerging markets for 13 consecutive weeks.

From March until May this year, a total of $23.16 billion was invested in emerging market funds, accounting for 88.4 percent of the total $26.2 billion in net investments in international funds markets over the same period. Total net inflow of global money directly in the world’s nine emerging markets including Korea, Taiwan, India and Brazil for the same period totaled $26.5 billion.

◆ Recovery Hopes

Another reason behind the steady net influx of global money into emerging markets is that global financial jitters are abating. A weak dollar and a decline in prices of U.S. treasury bonds also played a role. As safe-haven assets such as the dollar and U.S. treasury bonds lost their luster, global money has headed to riskier emerging market funds, stocks and bonds.   

Expectations of a recovery in emerging markets centering on China was a particularly decisive factor behind the trend. So Jang-ho, an analyst at Samsung Securities, said, "Emerging economies have a greater chance of recovering faster than advanced economies, and this means we will see a continuation of global money returning to emerging economies."

◆ Exodus Risk

But the flow of investment could simply be a shift in available funds caused by increased liquidity in major countries to markets that have been less impacted by the financial crisis, said Kim Min-jung, a researcher at the Bank of Korea. And these sudden surges at emerging bourses are actually a bubble that could pop very quickly if the money leaves again. Imbalances between emerging economies are also a risk, because if global money heads to emerging economies with ample natural resources, then Korea and other resource-poor markets could be left out.