Veteran emerging market investor Mark Mobius said he sees more money flow into Asian economies, including India, and expects money managers to chase more risk.
Speaking to CNBC International, Mobius said after the 50 bps Fed rate cut, he is more bullish on a wider EM basket, aside of India, which he has been very bullish on.
Reacting to the FOMC decision, benchmark Nifty and Sensex hit record highs in early trade on September 19. Gains in Asia was led by Japan’s Nikkei, along with MSCI EM indices too rose the most in a week.
"I was more cautious on EMs ex-India, but now with this rate cut I am much more bullish on emerging markets," Mobius said, highlighting that he sees more funds now flow outside of US, which still has the biggest pool of investable money in the world.
Despite valuation concerns being echoed in India's small and midcap space, Mobius said he is still very upbeat on India's as an investment destination. "I am still very bullish on India, you'll see that on P/E terms it is getting very expensive, but we pay attention to growth as well. You got to look at the 'E', not just the 'P', in the combination," Mark Mobius said.
Indian markets have outperformed S&P 500 on a five-year basis, and Mobius said the trend may continue as more funds flow into EMs after the rate cut.
Five-Year Performance
| Indices | Returns |
| Dow Jones | 54% |
| Nasdaq | 115% |
| FTSE | 12.5% |
| Nikkei | 72% |
| Nifty | 126% |
Other emerging markets like Taiwan, Indonesia, Thailand, South Korea too are doing well, and are expected to attract more investments, Mobius said. Not just the EM pack, Mobius sees other debt-laden economies such as Mexico, Brazil, South Africa and Turkey too benefitting from the Fed rate cut, as it will get easier for them to pay off their dollar-denominated debt after the rate cut.
In terms of foreign inflow, September is already poised to be the best month of 2024. FIIs have been net buyers of over $3.3 billion, a huge jump from last month’s total buy of $873 million. Global funds could take a cue from lower US rates and further go overweight on India.
FIIs have been net buyers in Indian equities for three of the eight months till August, and was leading the emerging market pack in terms of inflows till September 12.
A Citi note recently highlighted that FIIs have historically been sellers of Indian equities in the month after a US rate cut cycle begins, but the full-year trend has remained positive.
The FOMC's first rate cut in over four years also came with forecasts indicating additional 50 bps cut for the rest of the two policy meetings in 2024. Later on Thursday, the Bank of England is also convening a meeting to decide on benchmark rate, and street expectation is that BoE may not cut rates in this meeting. Bank of Japan too has an interest rate decision due on Friday, and the central bank will attempt to guide on rate hikes without causing triggering the markets, as it happened in early August.
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