It does not automatically mean you are going to see a rush to enter China because there was already scope for more investment inflows into the equity markets prior to this opening of the quotas to the global funds, says Mitul Kotecha, Senior EM Strategist, TD Securities. Excerpts from an interview with ETNOW.
It is not going to be a gold rush for Chinese stocks, but is this India’s loss?
As you say it is not a gold rush. But it is a positive step in opening the Chinese market. It just follows the recent cut in reserve requirements to add more liquidity into China’s financial sector. But at the same time we have to be cognisant of the fact that flows into China’s equities have not been that strong.
Overall, equities have outperformed the CMO. The Chinese currency continues to weaken and growth in China is slowing. So that also puts some investors off. When we look at the actual quotas of $300 billion, only around one-third of that had been utilised by foreign investors. It does not automatically mean you are going to see a rush to enter China because there was already scope for more investment inflows into the equity markets prior to this opening of the quotas to the global funds.
Would you say though that China’s gain could be India’s loss because whatever allocation was to happen to India would go to China?
Only to a limited . People see investments in China and India both necessary for a global diverse emerging market equity portfolio. China has been encouraging flows by doing away with limits.
But equity flows into India have not necessarily been restricted for foreign investors. Yes, the FPI tax has been a bit of an adverse impact on flows but the reversal of that decision should bode well. There is a little bit of a loss for India to this extent but it is marginal.