Emerging trend: EMs lose flavour

With risk aversion rising across the globe, dedicated emerging market (EM) equity funds…

With risk aversion rising across the globe, dedicated emerging market (EM) equity funds reported outflows of $2.56 billion for the week ended December 31. That’s the seventh straight week of outflows for dedicated EM funds, cumulatively amounting to $17.1 billion, according to a report by Morgan Stanley.  The trend appears to be continuing into 2015. In the first seven sessions of 2015, foreign portfolio investors (FPIs) have sold close to $400 million worth of Indian stocks.

But that is relatively smaller than the withdrawals from market like Taiwan from where $600 million has been withdrawn. China too saw money moving out, with the largest outflows within EM markets of $1.54 billion in the week to December 31. The Chinese market has being doing well in 2015 so far, though, possibly because it is cheaper than many peers and trades at a multiple of of close to 16 times. In 2014, FPIs had invested around $16.2 billion in India. While liquidity has been contained after the Fed rolled back its third cycle of quantitative easing, investors expect more monetary easing by European Central Bank ) while Japan stays its course and China also considers stimulus. Although such liquidity infusion is could bring some respite to global equity markets, EMs may not necessarily benefit from it; barring QE1, EMs were not the top performers in the subsequent two rounds of easing.

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