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BOBBY YIP

Remember all that talk about the emerging markets asset bubble? Well, here's the money talking now: It looks like developed markets are back in vogue in 2011.

Developed market equities have been outperforming their emerging counterparts since the turn of the year, in one of the biggest swings in asset flows so far, according to this report by Reuters European investment correspondent Jeremy Gaunt.

So far this year, MSCI's developed market stock index has risen 3.2 percent -- and in the highly unlikely event this rate continues, developed market stocks would have the best compounded gain in at least 40 years. The benchmark emerging market index, on the other hand, is in negative territory, having fallen more than three quarters of a percent.

The trend may well stay in place for the first half of the year. Emerging market assets are fully priced, maybe even overvalued, according to some analysts, and inflation is increasingly an issue.

The outperformance goes further. On a daily basis last year, developed markets outperformed emerging markets 47 percent of the time. So far this year, they have done so around 63 percent of the time.

And in terms of beta, emerging markets are moving closer to being in lockstep with developed markets -- meaning that there is little to be gained for the extra risk they may carry.

Where is the money going? According to fund flow analysts EPFR Global, the week up to January 21 was the sixth of net inflows to U.S. equity funds that they track out of the past seven, amounting to total net inflows of $17.3-billion. It compares with net $49-billion outflows from the sector in 2010.

Goldman Sachs has been telling its clients to emphasise U.S. and Japanese stocks in the first half of the year and to go back to emerging markets (along with European) in the second half.

Six months should bring down the cost of emerging market equities as well, and there's also a possibility that the developed economies will take a turn for the worse by then, making them less attractive.

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