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Emerging markets, including India, saw a return of foreign inflows after five weeks of outflows, with notable investments in China, Hong Kong, and South Korea.
NEW DELHI: After 5 weeks of relentless outflows favoring the U.S., emerging markets witnessed a sigh of relief as foreign inflows returned at a slower pace across most regions. According to Elara Capital research, the week saw positive inflows into China ($221 million), Hong Kong ($176 million), India ($164 million), and South Korea ($57 million). Smaller inflows were also observed in Argentina, Israel, Singapore, South Africa, and Thailand funds.
While emerging economies experienced modest inflows, European markets and Japan faced significant foreign outflows. France recorded the largest outflow of $625 million, followed by the United Kingdom ($372 million), Germany ($320 million), Japan ($267 million), and the Netherlands ($196 million). Italy and smaller European nations also experienced redemptions, highlighting a broader trend of investor caution in these regions.
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Conversely, U.S. funds continued their dominance, with an inflow of $9.9 billion in the first week of December, up from $8 billion in the prior week. A notable shift was observed in U.S. Midcap and Smallcap funds, which received $611 million and $4.6 billion, respectively, marking a resurgence in demand for these segments after a prolonged hiatus.
India-specific funds showed signs of recovery after enduring consistent outflows over the last eight weeks. In the first week of December, inflows amounted to $156 million, following a substantial $1 billion redemption since October 2024. However, the recovery was concentrated in large-cap funds, while mid-cap funds faced slower redemptions for the 22nd consecutive week, cumulatively losing $900 million.
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Elara Capital’s analysis of historical foreign flow cycles suggests that the broader trend of foreign investments into India might have peaked for now, with smaller intermittent inflows expected.
The global appetite for high-risk assets remains intact, as evidenced by continued interest in junk bonds. Commodity flows remained positive for the third consecutive week, with a gradual uptick observed over the past two months. Despite this recovery, long-term momentum in commodity flows has fallen to levels last seen during January 2009, October 2015, and October 2019. Historically, such lows have been precursors to significant outperformance in India’s Metal index, a trend that is gradually reviving.
While emerging markets, including India, are seeing a return of inflows, the broader trend suggests cautious optimism, influenced by evolving global conditions and sector-specific dynamics.
