Emerging-Stock Funds Post Inflows, Led by India, Citigroup Says

Emerging-market (MXEF) equities lured funds as India and China led Asia to a fifth week of inflows, while investors sold developed-nation stocks, Citigroup Inc. said.

Emerging funds attracted $828 million in the week ended Oct. 10, compared with a $2.1 billion outflow from developed funds, Markus Rosgen and Yue-Hin Pong, Citigroup’s analysts, wrote in a report today, citing data compiled by EPFR Global. India-focused funds had inflows of $157 million, while China funds took $84 million, the analysts said.

“It’s possible that investors are trying to play a little catch up until the year-end” after emerging stocks have underperformed, Pong said in an e-mail response today.

The MSCI Emerging Markets Index has climbed 9 percent this year, trailing an 11 percent increase in the MSCI World Index (MXWO) of developed countries. The emerging-markets gauge trades at 11.5 times estimated earnings, compared with the MSCI World’s multiple of 13.1, according to data compiled by Bloomberg. The MSCI emerging index was little changed at 996.14 today.

“While the asset class has underperformed year-to-date, we expect better performance in the quarters ahead, supported by stabilising Chinese gross domestic product and easier monetary policy,” Citigroup analysts, led by global strategist Hasan Tevfik, wrote in a separate report dated Oct. 10. “We note that valuations in emerging market continue to look attractive, however profits have weakened in part due to lower commodity prices.”

Within emerging markets, Citigroup is most “positive” on Asia, where the central bank asset growth has just started to accelerate, the analysts said.

Easier Policies

Bank of Korea Governor Kim Choong Soo and his board in Seoul yesterday lowered the benchmark seven-day repurchase rate to 2.75 percent from 3 percent. India’s central bank last month reduced the amount of deposits lenders must set aside as reserves, supporting the government’s push to revive growth.

India has had foreign institutional investor inflows of $17.5 billion this year, the largest in Asia, followed by South Korea with $13.6 billion in purchases by foreign investors, according to Citigroup.

India’s Sensex index has surged 21 percent this year as Prime Minister Manmohan Singh cut fuel subsidies, opened retailing and airlines to foreigners and reduced a tax on local companies’ overseas borrowings in a wave of policy making since last month after two years of gridlock.

China’s Shanghai Composite Index (SHCOMP) has risen 0.6 percent this week, heading for a second week of gains, on speculation the government will accelerate measures to boost the market and economy. Central Huijin Investment Ltd., a unit of its sovereign wealth fund, started acquiring shares in the nation’s four largest banks.

-- Editors: Allen Wan, Chan Tien Hin

To contact the reporters on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net Saeromi Shin in Seoul at sshin15@bloomberg.net

To contact the editor responsible for this story: Allen Wan at awan3@bloomberg.net

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