Global Funds Shift From Emerging Markets To US Equities On Strong Dollar

(Bloomberg) -- Before the trading day starts we bring you a digest of the key news and events that are likely to move markets. Today we look at:

Good morning, this is Ashutosh Joshi, an equities reporter in Mumbai. Bulls look set to kick off the truncated week on an upbeat note, with Nifty futures signaling gains. Asian equities are higher, fueled by US data that has boosted bets for interest-rate cuts. That said, the mood remains cautious after last week’s steep fall, and technical charts offer little reassurance.

Global funds sour on global EMs

The strong dollar is proving to be a magnet for global money managers, who are shifting funds out of emerging markets and into US equities. Last week alone, large-cap funds in the US received inflows of $78 billion, according to data from Elara Capital. Mid-cap and small-cap funds also got significant inflows, which could spell bad news for their counterparts in India. Elara warns that historically, a big shift in liquidity toward US equities has often been followed by weaker returns in India.

Momentum turning out to be a double edged-sword

Momentum investors are learning the hard way that the strategy can cut both ways. The Nifty200 Momentum 30 index is down 13% from its September peak and ended lower for the fourth straight session on Friday. Despite being up 21% for the year, the real test for fund managers will be tackling the downward momentum if the market continues to correct. With the majority of momentum funds fully invested in equities, their only option to ride the downswing is via derivatives. This could signal a significant shift in strategy for these funds moving forward.

Traders bet on lifting of sugar export curbs 

After a good run in the last few years, sugar stocks hit a rough patch in 2024. Bloomberg’s custom gauge of 15 Indian sugar millers has slipped 3% this year, and is heading for its first annual decline since 2018. Curbs on exports and on the use of sugarcane for ethanol production have hurt profitability. However, traders are hopeful that some of these measures might be lifted soon, with sugar production expected to be in surplus this crushing season. Some of the notable names in this sector have seen their shares fall 30%-35% this year, which could set the stage for a sharp rebound if the restrictions are eased.

Analysts actions:

Three great reads from Bloomberg today:

And, finally.. 

Indian companies are making a beeline for the stock markets to raise funds, and Bloomberg Economics suggests this could be a positive sign for an investment-driven growth recovery. Over the past year, the reliance on bank loans has fallen markedly, from over 70% in September 2023 to about 51% by August. This is due to rising real rates, which have slowed down bank lending to businesses. Meanwhile, the share of funds raised via equity issuance has almost doubled, jumping from 11.5% to 22.4%, and corporate bonds are seeing a boost too, climbing from 16.3% to 22.4%.

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--With assistance from Kartik Goyal, Alex Gabriel Simon and Chiranjivi Chakraborty.

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