Record inflows into US hedge funds in the April-June quarter of the current year are largely responsible for the strong performance of Asian markets.

The 30-share Bombay Stock Exchange Sensex closed at a 39-month high on Monday at 4,849.27.

The Sensex has jumped by around 66 per cent from a six-month high in late April. Hong Kong's Hang Seng index has surged 23.85 per cent since June 2, 2003, to close at a 17-month high of 11,961.97 on Monday. South Korea's Kopsi has rallied by around 27.28 per cent since March 2003.

The Morgan Stanley Capital Index Asia-Pacific (ex-Japan) is also at a three-year high.

Market sources said the strong gains in the Asian emerging markets since the beginning of the calendar year have, in turn, enabled hedge funds to attract more inflows at home. According to US trade journals, hedge funds saw a record quarterly net inflow of $13.83 billion in the second (April-June) quarter of 2003.

This was on top of the $6.98 billion net inflows in the first quarter (January-March). Net asset flows into the hedge fund industry as of mid-year 2003 have already surpassed the total net inflows of $16.28 billion in the whole of 2002.

According to an analysis published on the websites of leading US stock brokers, much of the inflows into hedge funds are coming from institutions.

"Many large investors have been tracking the industry for some time and are now making allocations. We are in the early stages of this trend," said V V L N Sastry, country head, Firstcall India Equity Advisors Pvt Ltd.

Firstcall India advises a few international investors on the Indian markets. Figures show that $1.70 billion of net inflows to the hedge fund industry were directed into new funds.

Another trend in the second quarter was a sharp slowing down in funds returned to investors, down from $2.11 billion in the first quarter in net assets returned to $1.05 billion in the second quarter.

According to data from the Emerging Portfolio.com Fund Research, global emerging market equity funds are attempting to outperform the benchmark MSCI emerging market fund index which has gained nearly 20 per cent year-to-date by overweighing mainly India, Brazil and Thailand in their portfolios.

According to the fund research firm, funds have the largest average weightage on India among the emerging markets where GEM funds have an average allocation of 6.5 per cent.

The projected gross domestic product growth of five per cent this year and 6 per cent next year, falling interest rates and a growing middle class that is supporting the growth in the consumer goods sector have all added to the funds' bullishness on India.

On a regional basis, GEM equity funds have nearly 52 per cent of their assets in Asia, up from 48.8 per cent in May.