With hindsight, the launch of a number of retail Latin American funds in the second half of last year should have sounded alarms about the danger of a large amount of footloose money washing around.
And indeed, a lot of it fled after the 20 December Mexican devaluation, triggering the crash there that spilt over into other emerging stock markets.
Yet many retail funds report that there have been surprisingly few redemptions of units by private investors.
Nicholas Morse, of Martin Currie in Edinburgh, is typical when he says: "We have seen a small number of redemptions by unit trust investors, but by no means a flood."
Funds had increased liquidity in anticipation of more redemptions but have so far not needed it. Some strategists are beginning to argue that this cash will soon be reinvested in the more attractive Latin markets. Some are looking good value after the correction they have suffered since Christmas.
Carolyn Dakers, senior fund manager for Thornton's Conquistador fund, argues that the crisis will be good for the region's markets in the long run. "It has shaken out the speculative short-term money," she says. The episode has reminded investors about the sort of disasters that can occur in emerging markets, which all fund managers say should be considered as long-term investments.
The investment managers believe they are the markets that will deliver the highest long-run returns. For all the problems of volatility and illiquidity, emerging economies will grow faster than developed countries.
Ms Dakers says: ``The Latin markets are certainly going to be volatile for the next few weeks. Even so, there is still a lot of interest from investors, although people are uncertain when to put their money in.''
Mark Turner, Latin American manager for Perpetual, thinks some of the region's markets will advance steadily this year, although with no big bounce. ``It will require a certain amount of foreign buying to start the momentum, but locals will buy too after selling out in the past month,'' he says.
There is unanimity that Mexico should be avoided. Tamzin Hobday, a strategist at Barings, says: ``There are some very interesting blue-chip companies in Mexico, but you are still looking at a recession and 20 per cent inflation this year.''
Argentina is also out of favour with the international investment community. Although the currency risk is small, the country is holding elections in May. There are also serious concerns about the fragility of its banking system.
The fund managers' favourites are Chile and Brazil. Chile has falling inflation and its industrial output is growing. On top of this, local pension funds into which Chileans are now obliged to put a high proportion of their salary are heavy investors in their own stock market. Their flow of funds should preserve the market from excesses of volatility.
Brazil is another country with strong growth and the added temptation of a privatisation programme. This is not finalised, but - depending on the flotation prices - could prove enormously popular. According to Micropal, Brazil has already been the main beneficiary of funds moving out of Mexico.
Mr Turner of Perpetual says: ``Choose dedicated funds for their expertise in the region, and ones not holding too much cash. Investors should make money in Latin America by Christmas, with some big gains in the second half of the year.'' Performance of Latin American funds to December 1994 Closed-end 3 mths 6 mths Size % % (millions) Baring Puma Fund ($) -22.52 0.19 188 Edinburgh Inca Trust (£) -24.63 -1.60 34 L. Am. Inv Trust Undil -22.58 10.37 194 - Foreign & Colonial ($) Scudder L. Am. -18.60 -10.06 43 Investment Trust (£) Templeton L. Am. -19.69 -10.31 39 Investment Trust (£) Open-end Abtrust L. Am. Fund (£) -24.04 -8.45 17 Edinburgh Exempt (£) -27.28 -8.82 12 Edinburgh L. Am. (£) -27.97 -10.79 35 Fleming L. Am. Exempt (£) -26.84 -6.69 50
%age returns, NAV to NAV, gross income reinvested. Source: Micropal