Global money managers continue to be interested in emerging markets, and of late, they are showing a marked preference for emerging Asian markets. There is still an element of catchup in flows to emerging markets; the growth differential is significant. We have been seeing fund managers much more focused on emerging Asia recently than the other major regions. Things were slow last week, but in the final month of 2020, weekly flows to India were much stronger than they have been in some time. Investors are certainly looking at pockets of value; emerging markets been slightly oversold especially relative to their potential growth this year and within EM universe India has rather dropped off the radar screen especially the foreign investors during the second half of the year. So I think there is some catch-up buying going on.
It’s early to assume that the dollar strengthening is the new normal. A lot of what happened in the last week was tied to a sudden hardening of long standing fears that we have been tracking in the flows especially the US may see much higher inflation this year than anyone has been previously predicting.8 February 2021