For all the concern about the prospect of tougher international sanctions and signs of slowing growth, more money flowed last month into Russia and China exchange-traded funds than any other emerging markets. US-based ETFs focused on Russia attracted US$265 million last month, or 14 per cent of their market value, the most among 47 regions after Portugal and Hong Kong. That was followed by mainland Chinese funds, which drew US$944 million, equivalent to 10 per cent of their value. Traders added to their Russian holdings as the six-month old conflict with Ukraine pushed the benchmark Micex Index to the steepest discount to emerging-market peers since 2008. "It appears that investors don't believe that the situation in Russia will worsen much further from where we are now and expect the indices to bounce again from oversold levels," said Elena Ogram, a Zurich-based investor at Bank Bellevue. Mainland stocks are buoyed by the prospect of economic stimulus from the government, she said. The Shanghai Composite Index rose to a 15-month high as growth in mainland service industries accelerated and the risk of protests in Hong Kong's financial district eased. The European Commission has pledged to propose a second round of economic penalties against Russia within the week. Ukraine and its allies in the US and Europe accuse Russia of dispatching troops and backing militias to open a new front in the conflict that the United Nations estimates claimed 2,600 lives. Russia has repeatedly denied involvement. The Micex Index rose 0.6 per cent in Moscow, the first increase in three days, trimming its decline this year to 6.9 per cent. The gauge trades at five times estimated earnings, compared with a multiple of 12 for MSCI's benchmark gauge for emerging markets. The discount reached 59 per cent last month, the biggest in more than five years. Russian markets have factored in "a lot of bad news," said Ole Soeberg, who helps manage about US$19.6 billion at Skagen in Stavanger, Norway. Investors added US$213 million to Market Vectors Russia ETF, the largest Russian fund of its kind, last month, boosting its assets to US$1.6 billion. IShares China Large-Cap ETF, the most-traded China ETF in the US, attracted US$518 million in August to increase the assets to US$5.9 billion. The inflows showed some signs of petering out toward the end of August. US ETFs that buy mainland and Hong Kong shares had the biggest decline in net inflows during the week ended August 29, as money entering emerging markets fell 26 per cent. The rally followed weaker-than-expected credit, production and investment data for July, suggesting the economy is losing momentum and adding to pressure on the government to step up efforts to meet its expansion target of 7.5 per cent this year. The Shanghai Composite has rebounded 13 per cent since mid- March on prospects Beijing will reduce its ownership of state-owned enterprises.