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Just five months ago, the emerging markets stumbled, then tumbled. Yet investors are going back for more.

According to MarketWatch during the last five weeks, investors have poured $2.5 billion into emerging markets. The five-week streak is the longest since the May-June plunge.

The truth is one didn't need MarketWatch to see the trend. A glance at the charts of the emerging market stock markets will suffice: India, Brazil, South Korea, even Tel Aviv: all overcame their mid-year slump and have regained ground. The mass exit in May-August ha been forgotten and the rapid surge in foreign investors in emerging markets is back to the record levels of early 2006. Indian and Chinese markets are at record heights, having gained 40% in the months since the crisis.

Yesterday the Bank of Israel poured some fuel on the flames. It published a weird paper, stating that the optimal portfolio composition for the Israeli investor would place 89% of the assets in emerging markets. Nimble investment banks have already issued papers that remind investors in Israel how wonderful it is to nestle in the niche of emerging markets.

Eran Cohen, manager of the "foreign" mutual funds at Migdal Capital Markets, wrote: "The study that the Bank of Israel issued shows what the Migdal Capital Markets investment firm long knew. The funds we run beautifully reflect the study's conclusions."

He also listed the three Migdal Capital Markets funds: China, India, and the Far East, which had achieved high returns in recent years.

The fresh media storm about emerging markets suited Migdal Capital Markets down to the ground. Last week the company began a billboards campaign, plugging "Dikla India Industries".

"Not faith: Facts," the investment firm writes: "40.82% returns in 12 months."

Other banks talk of 6-7% returns. Migdal's numbers are unquestionably bigger. But what about the risks?

The risk and the timing

And while about it, why now? Where were the Migdal men during the plunge and before the great rally? Why didn't they plaster their fund all over billboards then? Why didn't it boast then about "what the Migdal Capital Markets investment firm long knew"?

During those horrible weeks, when investors in Dikla needed nerves of steel to stay on board when everybody else was racing for the exit, nobody was there to support them. Nobody was there to say, "Right, you lost money. It isn't pleasant but it isn't a disaster either. We believe that the violent correction in the global financial markets is a financial blip, that will pass. Our decision to invest in India was the right one, for the long run, so stay put, that's out advice. It's just a slight correction of the outperformance of these markets."

If Migdal had done that in the months after the fall, when matters began to stabilize, it would have done a good thing. An investor who got in then has made 30%. But Migdal did no such thing, because you can't raise millions that way. You can with a big number on billboards.

During that period, Migdal was busily hawking another fund, which was apparently at its peak.

It's a pity because the 35% that the fund made since the crash - nobody can return to the investors who fled.

That is the paradox of the capital market: when there is solid meat to the gains, there's no track record, and when there is a record, prices are already too high.

In the last few months, the world's exchanges marched ahead and nobody noticed. Now that prices are pretty high, Migdal is ushering in investors and building on their short memories.

Look at the chart below, which shows Dikla India Industries's returns in parallel with fundraising and redemptions (the public coming in, and getting out). It's like a parody: the public comes in just when the market is at its highest, and flees after it falls.

Key: Blue line - Dikla India Industries; change in return, in percent
Red bars - Amounts raised, in millions of shekels.

We see that from January to April, Dikla India Industries raised NIS 384 million. At its peak it had NIS 712 million under management. When was that? Right, April, just before the crash. Then the public fled and the fund lost NIS 310 million through withdrawals. Almost everybody who got out lost money.

Uri Shmueli, marketing VP at Migdal Capital Markets, commented that the decision to publicize the fund does derive from a desire to recruit clients, but naturally there is no negative conclusion about the product. In short, Migdal thinks it has room to rise.