The number of ex-China EM funds has nearly doubled to 70 worldwide in two years, Morningstar data showed, reflecting a robust investor appetite for such assets outside of China.
And Mumbai is a key beneficiary of this shift, said fund managers.
“India is expected to be a big beneficiary of such funds in the months to come,” said Kailash Kulkarni, CEO, of HSBC Mutual Fund. “India is structurally placed very well, with the economy fueled by multiple themes. Fiscal discipline, growing forex reserves, and a currency that has been least volatile as compared with others have helped give a lot of confidence to global investors, who are looking at investing in growth markets.”
This year, more than 20 emerging market ex-China equity funds have launched – exceeding the total number introduced in all of 2023. Ex-China EM funds have attracted $10 billion in net inflows so far in 2024 surpassing broader EM fund inflows, according to JP Morgan cited by the Financial Times last week.
This shift in global capital flows could direct increased investment toward India, strengthening its position as a preferred emerging market destination, according to fund managers.Last week Franklin Templeton launched the Templeton Emerging Markets Ex-China fund, an open-ended fund that will be a concentrated portfolio of 40-60 stocks.
Last month, Abrdn announced that it will relaunch its Emerging Markets Sustainable Equity fund to exclude China and will rebrand the product to the Emerging Markets Ex China fund.
Overseas funds sold over βΉ1 lakh crore worth of Indian equities in October, with reports indicating that part of this capital shifted toward China, driven by its recent stimulus measures and attractive stock valuations. The MSCI China Index has gained 21% so far this year, compared to relatively subdued performance in Indian markets which gained.
The recent FPI sell-off may be temporary, with market participants expecting a shift as more global funds consider divesting from China and reallocating to other emerging markets, including India. MSCI India declined 7% in the past one month, compared with a 12% surge in MSCI China index. “India will definitely benefit in the coming months from the growing demand for emerging market funds excluding China – a trend that has gained momentum recently,” said Raamdeo Agrawal, chairman, Motilal Oswal Financial Services. “The current sell-off by foreign investors, likely a response to high valuations and weaker earnings, appears temporary, with expectations for a market rebound as earnings improve.”
The MSCI Emerging Markets ex-China Index includes large- and mid-cap stocks across 23 of the 24 emerging market countries, excluding China. India holds the highest weight at 27.04%, followed by Taiwan at 24.33%, South Korea at 14.46%, Brazil at 6.7%, and Saudi Arabia at 5.25%. Among the index’s 680 constituents, Indian companies such as Reliance Industries, HDFC Bank, ICICI Bank, Infosys, and Bharti Airtel rank within the top 10 holdings.
Tamara Haban-Beer Stats, lead strategist for ETF and Index Investing, BlackRock Australia recently wrote that a modular approach that splits EM and China allocations allows investors to more nimbly pivot as tactical opportunities arise.
“One option is to replace the traditional EM exposure with a proportionate combination of China and EM ex-China exposures, which resembles the broader EM index but provides a ‘lever’ to over- or under-weight China based on the market outlook,” she said.
Source link
