Individual investors are pouring money into emerging market equities at the fastest pace since 2007

Individual investors are pouring money into emerging market equities at the fastest pace since 2007 as the largest rally in 16 years is behind three of the largest banks in the world to predict the shares hit a record next year.

The last time investors were this rise, the MSCI Emerging Markets Index plunged 11 percent in three months, according to data compiled by EPFR Global . The gauge trades 2 times net assets within 4 percent of the most expensive level on record against the MSCI World Index of shares in developed nations, according to MSCI Inc.

"After all this money has flooded the whole world in love with them and all the euphoria that surrounds them is hard to find fundamental value," said David Harris Associates LP de Herrera, who was named international manager of equity funds of the decade this year, Morningstar Inc. "Growth in emerging markets is much help to the world, but you can pay more for it and that is what is happening."

Herrera, whose $ 6,000,000,000 Oakmark International Fund of Chicago won 82 percent of the companions of this year, has reduced stocks of emerging markets to 4 percent of farms with more than 20 per cent at end-1990 inflation urges China and India to increase interest rates and Thailand and Brazil to raise taxes on international investors. Away from the fastest growing economies puts him at odds with the strategists at UBS AG to Citigroup Inc.

The MSCI Emerging Markets Index fell 0.6 percent to 1,113.63 at 9:40 am in New York, after declining 0.8 percent yesterday. The MSCI World Index fell 0.1 percent today.

Coca Cola, Colgate

Jack Ablin, the chief investment officer at Harris Private Bank, said that emerging market stocks were too expensive for a month before it peaked in 2007, favors shares of U.S. companies selling to developing countries.

Coca-Cola Co., the beverage maker based in Atlanta, is valued at a discount of 18 percent for the MSCI Emerging Markets Index Consumer Staples after trading at an average premium of 74 percent since 1995, price -benefits compiled by us. New York, Colgate-Palmolive Co., the world's largest maker of toothpaste, trades at a discount of 25 percent for consumption indicator emerging values, compared with a historical increase of 70 percent.

Both companies get about 50 percent of its operating income in emerging markets.

Bullish strategists

"Yes, I believe that emerging economies will surpass the developed world," said Ablin, who helps oversee about $ 55 million dollars to the Canadian unit of BMO Financial Group. "But we still do not want to pursue these ratings, because a lot of optimism priced in-

The emerging market strategists UBS, Citigroup, JPMorgan Chase & Co., Credit Suisse Group AG and Morgan Stanley are more optimistic than their U.S. counterparts following and Europe.

The average of five estimates for the MSCI index next year is 1463, or 30 percent higher than yesterday's level and 9.3 percent higher than the all-time closing high on October 29, 2007. The strategists are calling for an increase of 9.9 percent in 500 of Standard & Poor's and an increase of 14 percent for the Stoxx Europe 600 index, according to the average estimates in surveys.

"There is a growing awareness that somehow the emerging markets are a safe place to be," said Mark Mobius, who oversees about $ 34 billion as chief executive of Templeton Emerging Markets Group. "I'm pretty optimistic."

Lower debt

The MSCI Emerging Markets index has risen 136 percent of its March 2009 low as developing economies out of the global recession in better shape than the advanced countries in almost all measures. The public debt will probably rise to 37 percent of emerging markets GDP next year and the budget deficit will be 2.9 percent, compared with levels of 101 percent and 6.7 percent in nations advanced, based in Washington the International Monetary Fund predicts.

Emerging economies may expand 6.4 percent in 2011, almost three times the rate of 2.2 percent for developed countries, estimates of funds October show. Developing nations are growing rapidly in part due to growing consumer demand in the country has reduced the reliance on exports to the U.S. and Europe, Goldman Sachs Asset Management Chairman Jim O'Neill said in a Dec. 6 interview On Television.

fastest economies have helped emerging market companies find more profitable growth opportunities that companies from developed countries. The return on equity for companies in the MSCI index for developing countries has risen from 10 percent at the end of last year to 14 percent, or about 3 percentage points more than the MSCI World index.

"The strong inflows'

Emerging market funds are attracting equity investment of money at a rapid pace, even after gains in the MSCI emerging market index fell to 13 percent this year from 75 percent in 2009. The entries of individuals in the funds during the past three months came to $ 12 billion, the highest since the three months ended December 2007, according to data compiled by Cambridge, EPFR research firm based in Massachusetts.

"Heavy capital inflows to emerging markets suggest a more prudent attitude is appropriate," wrote Ian Scott, global equity strategist at London-based Nomura Holdings Inc., in a research report on 5 December. Cut populations of developing nations to "underweight" from "overweight", saying they are vulnerable to borrowing costs and increased capital controls.

China's central bank raised benchmark interest rates and deposit in October for the first time since 2007 and the policy makers in India have raised interest rates six times in 2010.

Capital controls

Brazil raised taxes on foreign investments in fixed income securities this year. Thailand took a 15 percent exemption from tax for foreign income of domestic bonds. Countries from Taiwan to South Korea have intervened in currency markets to curb currency gains, according to traders.

Herrera, whose Oakmark International Fund rose 16 percent this year, said the search of some of their best investment opportunities in Japan, even though the IMF is forecasting economic growth of 1.5 percent next year.

His fund owns shares of Tokyo-based Daiwa Securities Group Inc., which trades at a discount of 66 percent to Beijing-based China Construction Bank Corp. and is 69 percent cheaper than Banco Bradesco SA, based in Osasco, Brazil, according to the price relationships data compiled by us.

China's economy may expand 9.6 percent next year, while Brazil is growing at a rate of 4.1 percent, according to IMF forecasts. India may increase by 8.4 percent, the fund provides.

"Late to the party"

Ablin of Harris Private Bank, said a losing investment in Chinese stocks for his personal account in 1993 showed that economic growth does not always translate into stock market gains. While China's economy registered an average annual growth of 12 percent in the four years until 1996, beating the global rate of 3.1 percent stake in China Ablin Fund Inc. lost 50 percent of its value.

"I was more or less bought into the consensus and I was late to the party," he said. "That lesson I said that there is a difference between the fundamental economic backdrop and stock valuation."