China-wary FIIs take a liking to Indian curry

India’s attractiveness as a destination for foreign investment appears to be growing even as flows into other Asian markets have slowed on growing concerns over valuations and a perception that the developed markets are relatively less risky.

India funds recorded net inflows of $180mn (Rs840crore) in the last week of September — a nine-week high.

On the other hand, investment in Asia equity funds saw a sharp fall after weeks of strong inflows. As per EPFR Global, inflows into Asia funds dropped from $427mn two weeks ago to just $59mn in the last week of September.

With this, Asia funds have ended the third quarter of calendar 2009 with net inflows of around $2.8bn —down 75 per cent from the previous quarter.

Blame it on the outflows from many South East Asian markets and weaker flows into China.

The last week of September saw steady outflows from Hong Kong ($25mn), Singapore ($12mn) and Taiwan ($4mn). Philippines and Malaysia also showed net outflows.

Net flows into China funds, meanwhile, fell 92 per cent week on week to less than $10mn as investors preferred to keep their money ahead of the weeklong holiday in mainland China markets.

Indonesia and Korea funds too showed lesser taper after almost 12 weeks on the back of selling pressure from FIIs.

“FIIs have been putting in money (in India) through the QIP (qualified institutional placement) route over last few weeks. FII inflows will continue unless anything drastically bad happens in the US. There is an inverse relationship between FII inflows and dollar appreciation and as long as dollar is weakening, money will come in,” said Ajay Parmar, head of research, Emkay Global Financial services.

“If you have markets where high-risk money has gone in for the last 5-6 months and these are overvalued, money tends to flow into safer havens, such as the developed markets where the risk is lower,” says Ambareesh Baliga, VP, Karvy Stock broking.

Emerging market equity funds, which had averaged $2.03bn/week in new money during the second quarter of this calendar, took in 1.43 million during the last week of the past quarter.

Global funds focusing on developed markets and global emerging market funds with total inflow of $2bn for the week ended September 30, showed far more promise than the Asia funds.

“Global equity funds have posted their 11th straight week of inflows totalling $10.4bn while Asia funds have seen inflows of $503 million during this period,” Elaine Chu & Markus Rosgen of Citi Investment Research & Analysis wrote in their report on Asia Pacific fund flows dated October 5.

Global emerging market funds  attracted the bulk of the money — around $1bn — during the last week of September to end the third quarter with net inflows of $4.87bn.

“As far as other BRIC markets are concerned, Brazil funds saw moderate inflows while Russia fund inflows have increased nearly five times week on week basis to $165mn,” Chau and Rosgen wrote.