In the second quarter, mutual funds focused on China experienced a net outflow of $674 million.
Investors fled the Chinese market, fearing the Asian giant’s weak economic recovery. China funds of A-shares and other equity categories attracted net inflows of $4 billion and $2.5 billion, respectively, for the first half of this year, driven mainly by the first quarter, according to Morningstar data.
Much lower data flows into European and US funds ($59 billion and $36 billion respectively) and Asian funds excluding China and India ($34.9 billion).
Indeed, in the second quarter, China-focused mutual funds suffered a net outflow of $674 million. By contrast, nearly $1 billion has gone into ex-China emerging market mutual funds, according to data from Refinitiv.
But where is it still possible to find value on emerging markets?
Japan
Japanese stocks have been an investor favorite this year with the highest inflows in 20 years, according to Eastspring Investments.
Demand for Japanese funds is strong among European investors, according to data from research firm Cerulli. Flows through actively managed Japanese funds turned positive in Europe in April, attracting $561 million of net new investment through mutual and exchange-traded funds.
Both Eastspring and Cerulli are optimistic about this market.
BofA pointed out in a research note that stocks with the best prospects are the beneficiaries of a weak yen, with stocks of short-term value, mainly export companies.
The bank viewed Japanese equities as having the following characteristics: resilient earnings, price-to-book ratio (P/B) below 1.5, and P/B potential upside relative to return on equity.
Some companies to consider, according to BofA, are:
- Mitsui & Co
- Honda engine
- Nomura
- Kansai Electric Power
- Mitsubishi Motors
- Panasonic
Emerging markets
A shift in global supply chain dynamics and weakening of China’s export dominance is set to benefit some emerging economies.
“Some of the investments that have exited the Chinese market have gone to countries that directly benefit from China’s economic woes, such as India, Vietnam, and countries that look set to replace China in global manufacturing supply chains,” said Joanne Peng, research analyst at Cerulli, citing Indonesia for electric vehicle supply chain and Malaysia and Vietnam for electronics.
Allspring’s Irwin is overweight in Latin America, where he selected stock in Fomento Economico Mexicano, a multinational beverage and retail company, and bullish on the stock in Indian bank HDFC.
Which scenario for China?
However, some believe China could recover soon.
Peng di Cerulli noted that China’s Politburo meeting on July 24 "sent a signal to reinvigorate the capital market and boost investor confidence."
“In terms of sectors, the Politburo meeting explicitly mentioned supporting the digital platforms business, which makes China’s technology, media, and telecom stocks particularly attractive compared to all others.”
“Policy support and ratings at multi-year lows have given these stocks plenty of room to ramp up.”
Original article published on Money.it Italy 2023-08-26 08:15:00. Original title: Dimenticate la Cina. Questi sono i principali mercati in cui investire ora
