Morningstar has warned against excessive exposure to India and China as it challenges the theory of emerging market de-coupling from the US.
While bullish on the long-term growth potential of the burgeoning economies, Morningstar analyst Ash Kumar believes the de-coupling “buzz word” is still far from the reality.
He says funds in the Morningstar Asia Pacific ex Japan, as well as the India and China equity categories, are “caving in” as US recession fears mount.
“The performance of Asian stock markets vis-à-vis the US, European and UK markets unfortunately suggests that the US contagion has reached the Asian shores, pouring cold water over the de-coupling theory,” Kumar says.
“In January, China was the worst performing market in the world, down 21% and India amongst the worst performers, losing 14.5% in a month.
“While the S&P500 index was also in the red, it was down just 5.8%.”
Kumar pointed to Morgan Stanley Asia data, which showed 46% of 2007 developing Asia GDP came from exports – with the US at the forefront of trading.
According to the latest IMA figures, an estimated £250m flowed out of the IMA Asia Pacific ex Japan and IMA Global Emerging Market sector funds in November and December last year.
“If you have chased performance up or even failed to trim back your winners over the past few years, you may well be over-exposed (to emerging markets) at this juncture,” Kumar says.
“Given that global emerging market funds also invest heavily in the two Asian behemoths, it is crucial investors understand the true extent of their India and China exposure.”
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