WEST PALM BEACH, FL (HEDGECO.NET) – India is beginning to revise its strategy as an emerging market, as hedge funds which control trillions of dollars are looking for new investment space. Emergingmarket funds have seen $30bn of inflows in the current year, surpassing the record inflow of $25bn in ’05. Now, with other investment options propping up, this inflow may reverse or at leastslowdown.
Hedge funds have led the investment flows into emerging markets. Last week has seen outflows from Indian and other emerging markets, and is one of the first signs that these hedge funds book profits in the best performing markets, ahead of change in macro-dynamics. These factors which are influencing hedge funds and global liquidity flows are the US fiscal deficit, US consumer sales data and the resulting hike in interest rates in the US. These data points are forcing funds to revise their emerging markets strategy, in anticipation of a redemption or better investment opportunity.
Three years back, when the Indian markets were the only markets showing robust GDP growth, corporate results were good and improving, but P/Es were low. Hedge funds came in, followed closely by the emerging market funds. With European and Japanese markets becoming cheap, you have a mega shift in investment options, something which hedge funds look out for. Therefore, hedge funds are moving back to cash, in anticipation of this change.
These long term investors are already there in Indian markets, but their future investments will also be dictated by what happens with US interest rates, and US consumer spending.
Alex Akesson
Contributing Writer
HedgeCo.Net
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