Emerging Markets will have a lower open this week but it is time to buy in these economic hot spots. Singapore, Thailand, Malaysia Equities and Currencies are a must own for all investors.

Capital inflows to emerging markets will surpass US$1T in Y 2011

Overall net private capital flows to emerging markets (EMs) this year is projected to exceed US$1T , continuing the upward trend fueled by strong fundamentals of the emerging economies, the Institute of International Finance (IIF) said Wednesday.

The level follows a 54% rise of net private capital flows to emerging markets to nearly US$990B in Y 2010, the IIF said in a report.

“The high level of capital flows to emerging markets reflects the rising weight of these economies in the global economy” and their stronger performance comparing with mature economies, said Charles Dallara, managing director of the Washington-based IIF.

Mr. Dallara held that the inflows contributed to Global growth, and about 40% of the total is accounted for by foreign direct investment (FDI).

This latest forecast for capital flows to remain strong this year and next, but not to pick up steam significantly, reflects the IIF’s assessment on underlying fundamental economic developments, said Jeremy Lawson, IIF’s deputy director of global macroeconomic analysis.

Emerging markets’ gross domestic product (GDP) growth is expected to ease from 7.2% in Y 2010 to 6.1% in Y 2012, which will remain well above the growth rates of advanced economies, but the growth gap is seen as narrowing, Mr. Lawson added.

The agency predicted that net private capital flows to emerging markets would rise moderately to US$1.056T in Y 2012 from US$1.041T in Y 2011.

The IIF stressed that different nations should be cautious about introducing capital control moves in response to high inflows. “In most cases, strong capital flows and rising exchange rates are simply the counterparts of strong fundamentals and a necessary part of macroeconomic adjustment. Moreover, capital controls are a distraction from the main policy task of reducing aggregate credit growth and inflation,” said Philip Suttle, IIF deputy managing director and chief economist.

“Inflationary pressures, rather than high capital inflows is the largest threat to sustained growth in most emerging economies. We believe that the appropriate response by governments in general is to allow their exchange rates to adjust over time, tighten monetary policy as necessary, as well as make greater use of fiscal and macro-prudenti6al policy measures,” Mr. Dallara added.

The IIF is a leading Global financial association representing more than 430 member agencies around the World.