A recent survey conducted by Bank of America among fund managers reveals a notable shift in regional sentiment, with India now overtaking Indonesia as the most underweighted equity market in Asia. This change underscores the growing wariness among investors toward a bourse that has delivered some of the weakest returns globally this year.
The primary concern weighing on the Indian market, according to the survey, is its insufficient exposure to AI-related business opportunities, with sluggish economic growth identified as the second-largest risk. Notably, 32% of the surveyed fund managers reported a net underweight position in Indian stocks, reflecting a cautious outlook driven also by a lack of meaningful reforms and elevated valuations.
In contrast, sentiment toward Indonesia has improved considerably. The proportion of managers with a net underweight stance on Indonesian equities has dipped to 27%, down from 32% in July. Meanwhile, Taiwan and Japan continue to hold their status as the most favored markets among investors in the region.
The poll, which took place between August 7 and August 13, gathered responses from 98 participants who collectively manage assets worth USD 272 billion. Despite a relatively positive earnings outlook, Indian equities have continued to weaken over the past two weeks, a trend that aligns with the survey's findings and suggests that investors remain cautious even as fundamental indicators show signs of improvement.
Data indicates that global funds have made net purchases of over USD 4 billion in Indian domestic stocks this quarter, the largest inflow among emerging Asian markets, following a record exodus in the first half of the year. Furthermore, earnings for constituents of the Nifty 50 index have surged 18% year-on-year in the last three months, significantly outpacing the 10% growth projection set by Motilal Oswal Financial Services Ltd.
This is not the first time India has topped this particular ranking. The previous instance was in May, when escalating US-Iran tensions drove international crude oil prices higher, putting additional strain on the Indian economy through increased energy costs. With the conflict still unresolved and energy prices climbing once again, investor sentiment has taken a hit. Although the Nifty 50 has rebounded 8% from its recent low in March, the index is still down 8% for the year, marking it as the second-worst performing major market in Asia and potentially ending its historic ten-year streak of annual gains.
Meanwhile, the improved mood surrounding Indonesia is largely attributed to the Jakarta Composite Index's impressive rally of over 20% since its June low. This resurgence is supported by measures from Indonesia's central bank to stabilize the local currency and a gradual dissipation of concerns regarding a potential downgrade of the nation's market status to 'frontier' by MSCI.
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