Investors have found where to develop – Newspaper Kommersant No. 11 (7456) dated 01/21/2023

Over the past week, international investors have invested in the funds of developing countries a record amount of funds. According to Emerging Portfolio Fund Research (EPFR), non-residents invested $12.7 billion in these assets, almost four times higher than the previous week. Global investors are buying up undervalued shares of companies in developing countries, counting on the strong growth of the Chinese economy and the stabilization of monetary policy in the United States.

International investors are actively increasing their investments in the funds of developing countries. According to Bank of America (BofA, takes into account data from Emerging Portfolio Fund Research, EPFR), following the results of the week ended January 18, the net inflow of client funds into emerging markets (EM) stock and bond funds reached an all-time record value of $12, 7 billion. A week earlier, inflows to EM funds amounted to only $3.6 billion. Only $9.2 billion was invested in developed markets funds during the reporting week, which is more than half the investment a week earlier.

The rise in investor interest in emerging market funds came amid the decision of the Chinese authorities to abandon the “zero tolerance” policy regarding COVID-19. This, according to market participants, can have a positive impact on the country’s economy. According to the January survey of portfolio managers conducted by BofA, 91% of respondents did not rule out a significant growth in the Chinese economy (see Kommersant of January 18). In such conditions, according to the portfolio manager of Alfa Capital Dmitry Skryabin, most of the inflows to EM funds went exactly to stocks and bonds of Chinese companies. “According to Goldman Sachs, the net inflow into shares of Chinese companies from institutional investors in January alone amounted to $9 billion,” notes Mr. Skryabin.

The decrease in inflation in the US also contributes to the improvement in the mood of market participants, which affects expectations for the Fed’s key rate. In December, consumer prices in the country rose by 6.5%, which is 0.6 percentage points (pp) lower than in November (see Kommersant of January 13). As a result, analysts do not rule out a slowdown in the Fed’s key rate hike to 0.25 percentage points (in December, the growth was 0.5 percentage points) and reaching a peak value of 4.9% in the second quarter. These expectations, according to Maxim Vasiliev, Chief Analyst of Trinfico Management Company, led to the redirection of cash flows by investors from expensive shares of American companies to “cheaper” shares of Europe and emerging markets as more attractive assets, offering, among other things, potentially increased returns for investors.

In the coming weeks, inflows into the funds of developing countries will continue, according to market participants. At the same time, their size will depend both on the ability of the Chinese authorities to implement plans to stimulate economic growth, and on the stability of the trend towards lower inflation in the United States. “The market is underestimating both the peak value of the Fed rate and the time during which the rate will remain high. In addition, there are still risks of a slowdown in the US economy, including in the conditions of reaching the ceiling on public debt, so the situation on the stock markets in the coming months does not look cloudless,” Dmitry Skryabin believes. However, he expects investor interest in EMs to continue relative to developed countries due to higher upside potential and lower market valuation multiples.

Vitaly Gaidaev