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China’s ETF outflows captured elsewhere in Asia
For years, India has been ramping up to contend with China as the region’s top technology leader. Pandemic-era supply chain issues hastened its successes in luring foreign tech firms. Now, equity investment flows are following suit. Dina Ting, Head of Global Index Portfolio Management at Franklin Templeton, highlights a few factors behind how the subcontinent is benefiting from rotational flows.
As China braces for renewed friction over President-elect Donald Trump’s tariff threats, investor flows may be following similar currents as those of regional supply chain shifts—that is to say, diversifying from China and toward opportunities in markets such as India and Japan.
After the People’s Bank of China revealed the most aggressive stimulus package it’s rolled out since the COVID-19 pandemic, China stock markets saw a short-lived rally at the end of September. A lack of detailed measures targeting consumption seems to have disappointed investors and led the bullish sentiment to deflate.
Adding to the country’s economic woes are societal changes like falling birthrates and a rapidly ageing population. Estimates by China’s National Health Commission suggest the country’s elderly population will grow to over 400 million by about 2035. To better cope with this crisis, China’s statutory retirement age will be extended, starting in January 2025, for the first time since the 1950s.
India investors, meanwhile, are finding the subcontinent—which has already overtaken China as the world’s most populous nation—appealing for its relative immunity to global risks, given its domestic-driven economy. Its younger labor force has also attracted a market pivot to this prime alternative to China manufacturing. For the 12-month period prior to China’s September 2024 stimulus announcement, US-listed India equity exchange traded funds (ETFs) garnered US$7.5 billion in flows—a sharp contrast to the US$6 billion in outflows experienced by China ETFs over the same period.1
Judging by India’s impressive initial public offering (IPO) environment, businesses there are feeling the optimism. The country’s 258 IPOs accounted for 30% of the global total by number by the end of September and 12% by the amount of money raised, in an economy that makes up just over 3% of global GDP.2
And investors in India are taking note. Aided by the improving digitalization of finance and increased internet access, India’s middle class is also an expanding retail investor class. By one measure, nationwide stock trading accounts nearly tripled from 2019 to 2023 to roughly 140 million.3
In dollar terms, total returns for Indian stocks have risen by 93% over the past five years, compared with about a 24% rise overall for emerging markets and drop of 5% for China stocks over the same period.
Many investors seeking to better diversify emerging market exposure or layer in targeted broad country allocation can tap single-country exchange-traded strategies.
Emerging markets in the Asia region are not the only beneficiaries of a potential US-China trade war. Earlier this year, investors were already driving up flows into Japan ETFs. Market watchers consider Japanese stocks to be indirect beneficiaries of Trump’s reflationary economic policy—which may keep interest rates high, thereby boosting the dollar and weakening the yen to the advantage of Japanese exporters.
The MSCI Japan Index is up nearly 21% in US dollar terms in the one-year period ending October 31, 2024. Consumer discretionary, financials and industrials holdings led gains during this time.
An element of uncertainty around the policies of a second Trump term, however, are still causing jitters around Asia, especially given the president-elect’s transactional approach to international relations.
Fortunately, Japan is seeing a renaissance in its semiconductor industry for which Tokyo is investing heavily (more than US$25 billion through 2025) and has established strong multilateral trade partnerships.
Japan has already elevated its role in global supply chain reorganization in recent years, and seeks to take advantage of its clout in joint free trade initiatives, such as the US’s Indo-Pacific Economic Framework for Prosperity to strengthen its regional supply-chain leadership.
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ETF från BNP Paribas med tillgång till statsobligationer på tillväxtmarknader säkrade mot den australiska dollarn
The Bank of Japan’s decision to double interest rates from 0.25% to 0.5% impacted the crypto market, though less significantly than the reaction in late July 2024. This rate hike, bringing interest levels to a 17-year high, appeared to be largely anticipated by the market, tempering the response of risk assets.
As mentioned in previous updates, corrections in Bitcoin are expected even during bull runs. However, it is encouraging to see signs of market maturity, leverage mitigation and reduced liquidity-driven reactions in such scenarios.
Market Highlights
Trump’s crypto executive order
Trump signed an EO titled ”Strengthening American leadership in digital financial technology”, following SEC’s new crypto task force.
This suggests a shift to a pro-crypto administration and a pivot in digital asset policy. It also showcases new US efforts to foster innovation and clarify its regulatory landscape.
US BTC ETFs more valuable than ever
After a seven-day inflow streak last week, BTC ETFs reached their highest value yet with over $123 billion in total net asset value.
This could be seen as a response to Trump’s executive order, highlighting the importance of the regulatory clarity that comes with it.
Assets resistance despite BoJ’s new rate hike
Assets avoided a meltdown after the Bank of Japan increased interest rates to the highest level since 2008, going from 0.25% to 0.5%.
This contrasts to last August’s meltdown and could indicate a more favorable environment. With less leverage in the system, the impact on liquid markets like crypto is likely to be lower during periods of stress.
Market Metrics
Trump’s executive order and other regulatory developments were overpowered by the BoJ’s rate hike, causing the NCITM (-1.7%) to close the week with a slight decline. However, it’s performance still leads other major asset classes, followed by EWZ (+8.1%) and Gold (+5.3%). This reinforces the notion that crypto has volatility even in the midst of bull runs, an important feature as this asset class matures.
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