Global emerging markets funds are increasingly allocating a higher proportion of their investments into India and in calendar 2024, funds flows to India topped the charts at 6.12 per cent (of total assets under management), followed by the US at 2.77 per cent and Japan at 2 per cent.
Foreign fund flows into India so far this year aggregated $15.8 billion compared to $14.6 in 2023. In contrast allocation to China has shrunk and so far there have been outflows of $16.6 billion compared to inflows of $4.2 billion in 2023, according to data collated by Elara Capital.
India has been a direct beneficiary of the weakness in the Chinese economy so that the gap between the two countries has narrowed with India at currently 20 per cent and China at 23 per cent in terms of allocation. At the MSCI quarterly index review next week this could change and India may surpass China, for the first time since 2006.
The data shows a shift of China funds into India funds, indicating the direct correlation of the weakness of China and how it is affecting global fund flows. Therefore any signs of a returning strength to the Chinese economy could work in its favour and global emerging markets funds increasing their allocation to the country.
Since March 2023, GEM funds have deployed $27 billion into India and pulled out $29 billion from China.
Other emerging markets such as Brazil, Vietnam, Mexico, and Indonesia have also seen outflows this year, compared to inflows last year.
The Chinese economy is struggling, domestic demand having weakened with the collapse of the property market and deflationary pressures widespread, Fitch Ratings said in a note last week.
In April, the rating agency had revised the outlook on China’s A+ sovereign rating to negative from stable. Outflows from China have gathered pace over the last several months, but the trend has been there right since March 2023 when the outflows started, and the momentum turned negative by July.
The US markets have also seen a sharp correction and key indicators such as shrinking output, a surge in unemployment rates and a deceleration in business investment all point to an imminent recession, that will have an effect on fund flows into the country.