Nomura, in a research note on emerging market (EM) funds, said investors trimmed India exposure in July and reallocated capital to Hong Kong, China, and Korea.
Relative allocations to India fell sharply, while positioning in these other key markets rose meaningfully, the foreign brokerage said.
Nomura based its view on allocation data from a sample of large global EM funds to track shifts in EM Asia equity positioning. As of end-July, EM funds’ relative allocation to India, on a trimmed-mean basis, dropped 1 percentage point month-on-month (MoM), with 41 of 45 funds in the sample cutting exposure.
In contrast, allocations to Hong Kong, China and Korea increased materially by 0.8 percentage points, 0.7 percentage points and 0.4 percentage points, respectively.
“A significant number of funds in our sample set (37 in the case of HK/China, out of 45) increased their relative allocations to HK/China equities during July. Meanwhile, Korea saw 29 funds increase allocations,” it said.
Nomura said 71 per cent of EM funds are now ‘Underweight’ on India as at end-July against 60 per cent previously, and India is now the largest ‘Underweight’ market in EM investors’ holdings.
EM Funds are 2.9 percentage points ‘Underweight on India relative to MSCI EM index, followed by Hong Kong/China at 1.8 per centage points.
In rest of Asia, key ‘Overweight’ are Indonesia (0.9 percentage points) and Korea (0.8 percentage points),
In terms of performance of EM funds, July appeared to have been a very challenging month for most EM managers. Only seven funds out of 45) outperformed the benchmark MSCI EM Index in July. However, so far month-to-date, most funds (35) are outperforming.
“For context, during Sep-2024, when China equities unexpectedly rallied strongly, only 10 funds managed to outperform. Investors appear to be less bearish on HK/China,” Nomura said.
On Korea, relative allocations increased 0.4 percentage points in July, with a greater number of funds (29 out of 45 in our sample set) posting higher relative allocations.
“There are now more funds that are OW Korea (60%), in contrast to almost an equal proportion of funds that were either UW or OW previously (42% each UW or OW).” Nomura said.