Investors Rush Back Into Risky Emerging Markets

The economic slump may not be over, but investors are piling on risk in emerging markets, driving up stocks in developing nations as they seek the large rebounds that will accompany a global turnaround, the Wall Street Journal reports. The week ending May 6 saw some $4 billion flow to emerging market funds. Brazil’s Bovespa index is up 75% over its October doldrums while overall emerging markets are up 50% since March.

The euphoria could be short-lived, however. "The excess of optimism is dangerous and could lead to disappointment the first time there is a negative number," one Brazilian central banker says. Still, Brazilian stocks trail only Russia’s in performance. Russia, particularly battered by the recession, has seen a 45% jump in its stocks this year. "These moves back upward are real," one investment banker said. "The black hole in front of us is gone." (More financial crisis stories.)