India's markets have surged, attracting $15.75 billion in foreign inflows, aligning it with major global investment hubs like the US and Japan. Conversely, outflows from China, Brazil, and others indicate shifting trends. India's GEM fund allocation rose to 20%, nearing China's 23%. Despite slowing global inflows, US smallcap investments are robust. India emerges as a top destination, benefitting from China's economic challenges, with positive sector-specific investments propelling growth.
In a remarkable turn of events, Indian markets have solidified their position as a prime destination for foreign investments on a global scale, drawing in an impressive $15.75 billion in inflows within the calendar year 2024. This surge in foreign liquidity marks a significant milestone for India's economic landscape, positioning it alongside stalwarts like the United States and Japan as major beneficiaries of international capital over the past couple of years.
Conversely, some of the largest outflows in 2024 have been witnessed in countries like China, Brazil, Taiwan, Mexico, Vietnam, and Indonesia, reflecting a shifting dynamic in global investment patterns.
A recent report from Elara Capital highlights the notable rise in India's allocation within Global Emerging Markets (GEM) funds, climbing to nearly 20% by the end of June, a substantial increase from a mere 8.5% recorded back in March 2020. In comparison, China's allocation has experienced a decline from its peak of 40% to 23%, showcasing a significant shift in investor sentiment.
Remarkably, India's current allocation in GEM funds now closely rivals that of China, a trend that has not been observed since 2006, signifying a potential turning point in the global investment landscape.
While global inflows have continued across various markets, the pace slightly decelerated last week to $8.9 billion following two weeks of substantial inflows totaling $70 billion. Notably, there has been a robust recovery in US Smallcap flows, with a remarkable influx of $15 billion into smallcap funds over the past four weeks, marking the strongest momentum in this sector since December 2020.
The report also highlights the resilience of Emerging Market inflows, which, although slightly reduced from the previous week's $11 billion, remained strong at $4.5 billion. Particularly noteworthy is the significant contribution from domestic investors in China, driving the strength in EM flows.
However, foreign investors have been utilizing this liquidity to divest stocks aggressively, with last week witnessing the largest outflow of $2.1 billion since the peak of the COVID-19 pandemic in March 2020. Notably, foreign funds have withdrawn a substantial $29 billion from China since March 2023 and redirected $27 billion towards investments in India, underlining India's growing appeal among global investors.
Commenting on this trend, the Elara Capital report underscores India's emergence as the primary beneficiary of China's economic slowdown, a shift that has accelerated notably post-election results. However, analysts suggest that this trend could reverse once signs of recovery become evident in the Chinese economy.
Meanwhile, foreign funds have also been divesting from Taiwan and Korea since May 2024, with Japan witnessing a break in momentum as evidenced by last week's redemptions of $656 million, marking the largest in CY24.
The report further notes that incremental foreign allocations are predominantly visible in the US and India, underscoring the growing confidence in these markets.
In terms of sector-specific investments within Emerging Markets, the IT sector continues to attract substantial inflows over the past six weeks, indicating sustained investor interest. Financial flows, which had shown signs of recovery some weeks back, are now facing challenges in maintaining momentum, with redemptions resuming. Additionally, while Consumer Good funds experienced a notable recovery in June and July, recent trends suggest a consolidation phase in the sector over the past two weeks, according to the report.
Amidst these developments, the global investment landscape continues to evolve, with India shining brightly as a beacon for foreign investors looking for promising opportunities in 2024 and beyond.
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