Emerging market funds were notably underweight in Asian equities throughout July, according to a recent note from Nomura. This shift in positioning—marked by reduced allocations to India, China, and Taiwan—reflects a significant change in risk sentiment from earlier in the year.
India experienced the most substantial reduction in fund positions, surpassing China and Hong Kong despite the country’s stock markets achieving a series of record highs. In China and Hong Kong, the trend of underweight positions continued to rise from June, driven by persistent negative sentiment towards the region. Despite a series of interest rate cuts and stimulus promises from Beijing, local markets remained largely unresponsive, compounded by ongoing weak economic data.
Conversely, emerging market funds slightly increased their holdings in Indonesia, South Korea, and Saudi Arabia during the same period.
The data for July signals a broader decline in risk appetite, which became more pronounced in early August. During this time, Asian emerging markets broadly declined, influenced by a spike in the Japanese yen that disrupted carry trades involving the currency.
Although regional markets recovered some of their losses later in August, investor sentiment towards risk assets remains fragile, particularly amid ongoing concerns about further yen appreciation.
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