Increased inflows into China not detrimental to India: Manulife

Investors had stayed away from China last year due to volatility in the markets. They had forecasted instability in the current fiscal too. But, things are stabilising in China and with many financial reforms having been introduced, more money may soon come in, says Geoff Lewis, Global Strategist - Capital Markets, Manulife Asset Management. However, this is not going to be detrimental to India as all the emerging markets - especially the Asian ones - continue to see large inflows, he says.Countries like Brazil, which have been recovering from a recession, have witnessed bottom fishing. And manufacturing countries like Taiwan and South Korea are also seeing money flowing into their markets, he says.Below is the transcript of Geoff Lewis’ interview to Latha Venkatesh, Sonia Shenoy and Anuj Singhal on CNBC-TV18. Sonia: It is a stellar rally that we are seeing across the Asian markets. However, we have seen that a lot of the money that has come into emerging market Asia has gone into markets like China rather than markets like India. India has got relatively lower amount. What is the sense you are getting? How much could India get from the overall share from the next 3-6 months? A: Money might be returning to China now but the numbers I have looked at for the beginning of the rally in emerging markets, there has been large inflows into emerging markets, some USD 20 billion, but there have actually been outflows according to the EPFR data from China. So, investors, up until this point stayed away from China firstly because of the ups and downs in the stock market last year and secondly, because they were maybe, not convinced that China’s economy was going to stabilise this year. More and more investors are now coming to think that there is very little chance of a hard landing, the Chinese economy does appear to be stabilising, growth has picked up in the second quarter. So, on top of that, we now have positive news in terms of financial reforms with the approval by State Council yesterday of the Shenzhen-Hong Kong Stock Connect. So, I would not be surprised if some money is coming into China now as a catch-up. I do not think it will be to India’s detriment over the longer term. I see this more as a catch-up. Latha: You are speaking about more money coming into emerging markets. What is the pecking order? A: It is coming in and there is quite a bias towards Asia. The commodity producers are still a bit out of favour, but there has been quite a lot of bottom fishing in those emerging markets like Russia and Brazil which suffered recession which now seems to be stabilising a little bit and moving out of recession. There has been quite a lot of money coming in into the manufacturing based Asian economies. A lot going into Taiwan, quite a bit going into Korea. So, it is really across the board. It is kind of an appreciation. The emerging markets have been an asset class that has been out of favour for the last 4-5 years but the worst is over and these markets now seem to be completing a bottoming out in terms of the share prices as far as the technical charts tell us. So, this is a general return to the asset class across a broad spectrum of markets. Anuj: So, how do you play this market? Do you play it by a high beta, like industrials, metals and all? They have done well, but the news continues to look good for them. A: Yes, that is right. I would be inclined to be quite well diversified in terms of sectors, but certainly to have exposure to the industrials and cyclicals, particularly because it looks like the data on the US economy is becoming more favourable. We have the Atlanta Fed nowcast for the third quarter. Last time I looked it was 3.5 percent and of course, inventories are no longer declining on a monthly data. So, it is quite likely the US economy has picked up and that should be good for the Asian exporters.