Since the huge stockpiles of debt across the globe can?t be wished away and growth is taking time to pick up, money is expected to remain in abundance with major economies left with little choice but to continue to supply liquidity. Investors for their part, were parking money is safer assets but that trend may be changing somewhat according to Eurekahedge, hedge funds have seen a net inflow of $ five billion in May bringing to a halt the trend of slowing inflows since February this year. A JP Morgan report talks of retail investors having bought close to $15 billion of equity funds last week, completely erasing the previous week?s outflows. This was in complete contrast to the average weekly inflows of around zero so far in the June, 2010 quarter. In fact, Emerging Market Funds got their fair share of investments and saw $2.5 billion move in.
That, JP Morgan points out, was well above the run rate of $400 million a week seen since April. Money?s moving back into India too; about $ one billion worth of stocks have been picked up by Foreign Institutional Investors (FIIs) in June so far after they pulled out $two billion in May. Flows into EPFR Global-tracked Emerging Market Equity Funds hit a ten-week high in the second week of June.
What?s prompting the increased investments in risk assets? For one, the resilience of the world economy is ostensibly encouraging investors to switch into some risky assets in markets like the US; part of the move is also due to the unexciting returns on other assets. According to EPFR, about $37 billion flowed out of money market funds in one week with investors clearly wanting to put their money to work. It?s quite possible, say experts that risk aversion may come off a little over the next couple of months. That?s not so much because there?s anything big to celebrate. Far from it. It has perhaps more to do with the fact that concerns about the consequences of all the financial problems across the globe including the sovereign crisis in some parts of the Eurozone may be easing; while it might seem like clutching at straws, fund managers could be drawing solace from the fact that economists haven?t changed their global GDP forecasts for 2010 in some time.
So it?s not that stock markets will see any secular upward trend but the volatility could be lower and the downside could be capped. That in itself is good news. Especially for the Indian market because a volatile market makes it difficult for companies to mop up money since it scares the daylights out of investors, especially the smaller ones. It?s not happening just yet; there are wild gyrations and little sign of it abating. That?s probably because not everyone?s convinced that it?s time to add risk. Indeed although FIIs have bought nearly $500 million worth of stock in the last couple of days, many believe the Indian market is now priced to perfection and that there are chances of an earnings downgrade which would make the market even more pricey. India has outperformed the benchmark MSCI Asia (ex-Japan) so far this year losing 4.5%, but right now China is cheaper in comparison as are other regional peers like South Korea.