In FY13, Sensex is down 1% and Shanghai Composite has lost 3%, both indices mirroring moves since early Feb
Unlike in 2012 when there was a huge divergence in the two markets, India and China are moving in tandem this year.
As global fund managers trimmed their weights on both the emerging markets since late March, their performance this year has been dominated by a reduction in exposure to emerging markets (EMs) instead of their individual economic credentials.
Last year, while foreign investors took fancy to Indian market with $24.5 billion worth of purchases that resulted in market returns of more than 25%, the Shanghai composite gained a meager 3% on concerns over falling GDP growth and hard landing.
In three months to September 2012, China?s economy managed a growth rate of 7.4% year-on-year, which was its lowest quarterly growth in more than three years, and raised worries of its impact on global recovery.
Although India faced its fair share of problems, including faltering growth rates and high inflation, the policy thrust post-September and an outlook of lower interest rates helped Indian equities bank on their lower valuations.
However, in the current year so far, India?s benchmark index Sensex is down nearly 1% and Shanghai Composite has lost more than 3%, with both indices mirroring their moves since early February.
Declining global risk appetite after the Cyprus debacle and lower economic growth expectations have resulted in fund managers paring their exposure to EMs. As per EPFR, during March and early April, about $3 billion were pulled out of EM equity funds while roughly $26 billion flowed into developed market equity funds.
It is estimated that for a ninth consecutive week, fund flows into developed market equities beat that in EMs with fund managers preferring markets like US and Japan.
Not surprisingly, in the recent past, S&P 500 and Nikkei, their respective benchmark indices, have touched multi-year highs.
The latest BofAML fund managers? survey shows that both the EM and Asia-Pacific fund managers turned increasingly bearish on India and China in April 2013.
While, at 13%, fund managers reduced their EM overweight to its lowest in one-and-a-half years, India saw the biggest swing in sentiment of EM fund managers, moving from a net 44% overweight to 27% underweight. Asian investors expanded their underweight on India by 10% to 15% in April also as they pruned their exposure to China from a net overweight to neutral.
The China growth outlook softened further, with a net 9% of global fund managers expecting a stronger economy, compared to 67% just four months ago.