EMs likely to outperform DMs in near-term: Quant Capital

Sonia: What kind of outflows have emerging markets seen in the past couple of weeks or so and with regards to India, what have been the numbers so far?

A: Last week emerging markets saw outflows of USD 3.7 billion which is an increase from prior week – two weeks back we saw outflow of USD 2 billion. So, there has been an increase in outflows in emerging market. If you focus just on India specific funds, we saw another USD 200 million of outflow. This outflow is different from the Sebi data but nonetheless India specific funds saw outflows of USD 200 million.

Since September 2013, we have seen outflows of USD 20 billion from global emerging markets (GEMs) funds and if we look at the history, such depressed flows are always followed by a strong outperformance of emerging markets relative to developed markets. So, going forward if you take a 12 month view, we think that emerging markets should outperform developed markets.

Latha: Are you seeing any improvement in the fringes, are you getting a sense that the outflows from emerging market funds is at least slowing down or petering out or any incremental inflows are showing improvement?

A: At the beginning of February the outflow figures were close to USD 6.7 billion on weekly basis which has come down to USD 1.5 billion to USD 3 billion now. So, there has been a significant moderation but if we look at on a cumulative basis, we have not seen such huge outflows in a long time. If we believe in the mean reverting property of flows, if you look at last 15 years of history, every time whenever emerging market has seen such huge outflows on a monthly basis or a weekly basis, it has always outperformed developed market. So, what I am trying to say is that mean reverting property, if that comes into play then emerging market would stand out right now.

Sonia: You said there has been about USD 200 million worth of outflows in the last couple of weeks but going ahead within emerging market funds, how will India specific funds perform?

A: Going ahead within the emerging market funds, if you look at country specific data, I think India would be the biggest beneficiary out of all emerging markets.

The outflows from India are much less than the BRIC nations and also if you look at South Korea, on year-to-data (YTD) basis South Korea, China have lost USD 4.5 billion to 4 billion already.

From India, we have seen outflows of USD 2.5 billion on YTD basis which is a big figure when we look from India specific fund perspective. So, such depressed levels-I think even from a very short-term basis like on 12 week basis, India should attract inflows going forward.

Latha: What is the source of the funds coming into India? Are they long only or are they exchange traded funds (ETF)?

A: It is long only and ETFs. So, the outflow that we are seeing right now is more from the ETFs.