Are emerging markets, including India's, losing their sheen off late?
After performing well in the last two years on the back of strong foreign fund inflows, analysts said a changing global investment scenario and better valuations in the developed markets were prompting foreign funds to revise their emerging market ratings.
Consider the Morgan Stanley Capital International (MSCI) world indices -- the benchmark used by global fund managers.
While the MSCI World index for developed markets as of May 27, 2005 has fallen 1.854 per cent year to date (YTD), it has fallen only 0.306 per cent quarter to date (QTD). The MSCI Emerging Market (EM) index has grown 1.536 per cent in the year so far and 0.33 per cent in the quarter to date.
"Most emerging markets (EM) including India may have witnessed a lacklustre year so far but some EM like Egypt have outperformed the rest of the EM by a big number, helping the EM show a better overall performance than developed markets so far," an analyst said.
The sheen may have gone as of now but the growth story in select cases like India remains intact and will continue to attract foreign investments going forward, he added.
Incidentally, despite its smart rise over the last few trading sessions, the Bombay Stock Exchange (BSE) Sensex has risen only 0.92 per cent from 6602.69 on December 31 last year to 6663.55 on Monday.
FIIs, the major drivers of the rally in the last two years, had not been as active as in the previous years, leading to a lacklustre year so far, brokers said.
After a year of positive inflows, foreign flows in equities has been the negative for the past two months in a row. Since the beginning of the new fiscal till date, foreign investors have sold Indian shares worth more than Rs 2,300 crore (Rs 23 billion).
This has been the story with most emerging markets, the reasons being high valuations, rising interest rates, higher international oil prices, inflation etc, analysts said.
Interestingly, the MSCI India index has risen by 0.741 per cent YTD and 3.24 per cent QTD, while the EM Asia index has grown by 2.246 per cent YTD and 0.192 per cent QTD.
The MSCI China index has fallen 2.358 per cent YTD and 1.997 per cent QTD. The biggest gainer in emerging markets indices - world is the EM Egypt index, rising 72.163 per cent in the year so far, while in Asia, the biggest gainer has been the EM Sri Lanka index, rising 40.033 per cent.
The worst performer in the emerging markets indexes - world was the MSCI Venezuela index falling 15.997 per cent in the year to date. Similarly, the worst performer in Asia was EM Thailand index, down 5.621 per cent YTD.
A research head at a foreign broking house said, "It has been a year of contrasts so far in the world equity markets. A changing global investment scenario has thrown up some surprises but emerging markets and the relative valuation story will continue to attract attention in the future."