Returns of emerging markets (EM) in Asia have lagged those of peers in the rest of the world in the past three months. MSCI’s EM Asia Index has risen by less than 10% in the past three months, far lower than the 23.4% return of the EM Latin America Index and the 31% return of the EM Eastern Europe Index. The MSCI India Index returned 11.4%, more or less tracking the underperformance of Asian emerging markets.
What gives? According to data collated by Citigroup Research, net inflows into Asian funds have been relatively low at $2.1 billion (Rs9,828 crore today) since August. In the same period, global emerging market funds received net inflows worth $8.6 billion. This is based on data published by Emerging Portfolio Fund Research (EPFR). Citigroup’s analysts point out that the lower inflows into Asian funds have been because of large fund-raising by Asian companies: “Over the last three months, companies in Asia (ex-Japan) raised US$54 billion both through IPOs (initial public offerings) and secondary issuances, which was 3.6 times the funds raised in Latin America, Emerging Europe, Middle East and South Africa all put together.”
While this has affected short-term returns of investors in Asian emerging markets, it is a healthy trend so far as the long-term health of Asian companies goes. It’s always good for companies to raise funds when markets are awash with liquidity, rather than scramble for funds when they are scarce. Asian companies have adopted this principle rather aggressively in recent months.
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