>THE FLOOD'S SECOND WAVE (CITI)

■ Resumption of strong inflows — After two weeks of decreasing inflows to Asian equity funds, new money to the region has turned abundant again. According to EPFR data, US$1.5b of new money was taken in by Asian funds versus an average of US$790m in prior two weeks, and was just 12% short of the amount in the first two weeks of May. GEM funds, which have 52% of equity holdings in Asia, saw continued inflows at US$1bn+ last week, whereas inflows to Global funds (Asian stake at 8%) were still lagging behind inflows to most EM fund groups.

■ The most sustained inflows lasted for 29 weeks; we are in 13th week — Current inflows have been the 4th-longest in history, totaling US$10.9b vs. US$18.2b for the 29-week record inflows between Nov 2005 and May 2006. In terms of average weekly inflows relative to asset size at the beginning of the period, this is as strong as the episode in 2006. Asian real GDP growth was 8.7% at that time vs. Citi forecast of 4.5% for this year; we think investors are focusing on relative growth but forgetting that Asian corporates are poorer in terms of translating GDP to EPS.

■ ETFs no longer the favorite — When inflows to Asian funds started picking up in April, around 60% of the money went into ETFs, but the share has fallen to just 25% over the past two weeks. Country wise, investors regained interest in China and India funds. Net cash taken in by these two exceeded US$487m in aggregate last week vs. US$45m in prior week. Watch out for Korea funds: inflows rose 13x.

To see full report: FUN WITH FLOWS