EMs may benefit from FII inflows into China: Quant

If China gets bulk of the FII inflows now, there could be some trickle down effect towards other emerging economies, says Rishav Dev of Quant Capital.

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EPFR data shows India has seen outflows of around USD 192 million last week, which is a little different from the Sebi data. According to Dev, this difference is because EPFR does not cover hedge fund data and prop desk data. Below is the verbatim transcript of Rishav Dev's interview on CNBC-TV18 Q: When we last spoke, you indicated that so far you have seen a chunk of the inflows going into the developed markets, particularly Europe has been gaining some traction. Anything that makes you believe that trend is going to change and emerging markets could turn out to be a hot favourite?
A: Last week when we spoke I had mentioned that China would be seeing little bit of inflows going forward and couple of weeks back they saw inflow of USD 600 million and last week also they saw an inflow of USD 400 million. So in the last two weeks they have already seen inflows of close to USD 1 billion. So out of all the emerging market countries China is the only country that is seeing reasonable amount of inflows followed by South Korea and Taiwan. Q: Historically whenever you have seen large inflows into China, have they come at the expense of markets like India or would India still attract inflows regardless of what China does?
A: Basically what happens in emerging market is that when the trend changes from outflows to inflows everything happens in chunks. So the density of flows is very high. For example, in 2009-10, there were periods of 30-32 weeks when emerging markets saw non-stop inflows close to USD 70-72 billion. This time we have not seen that density. If China is the leader this time we might see some trickle down effect from China towards other emerging market countries. Q: You said that China has gotten inflows of over USD 1 billion in last two weeks. In the same period do you know how much India has got?
A: According to the EPFR data we have seen outflows of close to USD 192 million last week which is a little bit different from the Sebi data as I mentioned last time. Q: Would you know where this differential is coming from, because a lot of people are saying that there is quite a bit of differential between the EPFR data and the Sebi reported data. A lot of people want to know where the differential is coming from.
A: I think the major difference would be hedge funds. The hedge fund data is not covered under EPFR. Prop desk data which is again not covered by the EPFR guys. So these two components would be the major differentiating factors. Q: Would that qualify as hot money which can be quickly ploughed as well?
A: Definitely. Prop desk money would be hot money. Q: Given the fact that bonds yields on an average have been at high levels in India for a long time how have been the debt flows in and out?
A: Debt flows have been very subdued lately. Overall also if we look at the global picture, on the debt side from May 29 onwards we have seen outflows of close to USD 100 billion from bond funds globally; majority of which have come from the US and European market and emerging market countries as well. So debt has been very slow. We have not seen any significant inflows in emerging market as well as in India in the past couple of months.