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| Investors' risk appetite revives, money returns from overseas |
| BS Reporter / Mumbai Jun 22, 2010, 00:25 IST |
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Investors had earlier pulled out funds, owing to the euro zone crisis.
Normalcy seems to have returned to financial markets and emerging markets are likely to be the biggest beneficiary.
There has been an outflow from money market funds and this is finding way to these markets.
During the week ending June 16, the combined emerging market equity funds tracked by EPFR, an independent research firm, netted inflows of $2.5 billion, the second strongest weekly inflow total this year.
| ROAD TO RECOVERY |
| Country/Index |
Weekly |
Yr-to-date |
| MSCI Asia Pacific |
3.32 |
-3.55 |
| MSCI Emerging Markets |
3.96 |
-3.64 |
| Brazil (Bovespa) |
1.31 |
-6.05 |
| Russia (RTS) |
3.88 |
-2.44 |
| China (Shanghai Comp) |
-2.21 |
-23.31 |
| India (Sensex) |
2.96 |
0.61 |
| Hong Kong (Hang Seng) |
2.08 |
-7.25 |
| Singapore (Straits Times) |
1.33 |
-2.22 |
“Over $37 billion flowed out of money market funds during the week, highlighting the desire of investors to put their money to work, although much of that ended up in short-term vehicles such as exchange traded funds (ETFs),” said EPFR.
Among the signs of revived risk appetite were the first weekly inflows for high-yield bond funds since the first week of May, with $659 million committed to emerging markets bond funds, EPFR adds.
The euro zone crisis had created panic amongst investors and they had pulled out funds from emerging markets and other risky assets. The MSCI Emerging Markets Index, a key one that tracks emerging equity markets, has gained 11 per cent since this year’s low on May25.
According to Dharmesh Mehta, head of equities at Enam Securities, “There is stability at the moment. And, this is good. There are still a lot of investors sitting on a pile of cash and India, along with other emerging markets, will benefit when the risk appetite grows again.”
A better monsoon and strong production numbers mean the growth story in India would continue to remain strong.
However, risk aversion levels still exist and there is still time for all the problems to clear, he cautioned.
Investors return
The impact of the pullout was felt in India as well, as foreign investors had pulled out Rs 9,436.70 crore ($2 billion) in May. The easing of risk aversion has seen some investors come back.
For the month of June, till last Friday, there have been net investors to the tune of Rs 4,948 crore ($1.06 billion). A majority of these, around Rs 3,370 crore ($0.77 billion) have come in the week ended June18.
The Indian stock market has also remained strong, with the Bombay Stock Exchange Sensex recording a 2.9 per cent gain. Other BRIC countries, except China, also recorded positive gains in the past week.
The effect of the risk appetite improving is also seen in currency markets. “Clearly, there is a sense of relief and this can be felt,” said a trader with a foreign bank in India. The Indian rupee touched Rs 46.30 per dollar on Thursday, its highest since May 20.
During the period covered by EPFR’s latest data, the MSCI world equities index rose five per cent, the euro strengthened 2.7 percent and the benchmark 10-year US Treasury yield climbed nine basis points. Also, the dollar index, which had peaked at 88.40 on June 6, has lost 2.7 points since.
Going ahead, more clarity and strength on the euro zone crisis and the domestic interest rate scenario is expected to provide direction to markets in India.
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