FIIs selling in China and India, buying in Russia

Foreign investors are selling in China and India, and buying in Russia. The sale in India has, however, been negligible compared to China.

According to the Merrill Lynch Survey of Fund Managers for August, “China growth expectations have slipped again in August to 49 per cent from 62 per cent in the previous month. This has led to investors selling China.”

The percentage for overweight was around 30 in July, which has fallen to just around 5 in August. The overweight for Russia has however been doubled from 22 to 44 between July and August, as per data available from the results of the survey.

The survey, in which 177 fund managers managing $370 billion worth of assets have participated, says that “a big rotation has been happening in the emerging markets and funds have been moving away from Asia.” The reason, fund managers said, was that “Chinese equities were close to neutral now in the emerging markets portfolios. The most favoured markets are growth/liquidity plays such as Russia, Turkey, and Indonesia.

The least favoured are the defensive markets such as Chile, Malaysia and Israel.”

The survey results turned marginally overweight for India in August from underweight in July despite monsoon fears. This is perhaps because FIIs still see some more opportunities. FIIs sold shares worth Rs 4,840 crore in the secondary market, but taking into account their investments in the primary market (IPOs and QIPs), the net sell was only Rs 697.90 crore.

The shift in the portfolios of FIIs has been visible in the indices. The Chinese market was among the best performers in the last six months, but has been falling over the last three weeks.

The index is now down by 14.7 per cent from its peak achieved on August 4. Among the other Bric markets, Brazil is stable while India is down just 4.3 per cent and Russia down a little over six per cent.

An FII representative said that Russia had growth potential due to the commodity boom. The concern in China is that the growth story might get punctured sooner than expected and the Chinese authorities have indicated there might be some monetary tightening, which might lead to further selling.

Though the Indian index has fallen only 4.3 per cent from the peak of the month, a fund manager with a leading US-based FII said that he expected the Indian market to correct more, as the poor monsoon would have an adverse impact on the country’s economic fundamentals.

“One of the reasons why India has not fallen much is that it is under-owned by institutional investors.” said Manishi Raychaudhuri, MD and Head of Research, BNP Paribas Securities.

And he may be right, as the Morgan Stanley Capital Index benchmark portfolio for India is 10.7 per cent, but the average investment is lower than that. He said many funds in Asia were underweight on India earlier. That situation may change as the market has been stable for some time.