Money Flowing into Asia and Emerging Market Funds Surpasses Developed Countries' Returns

With Expectations for COVID-19 Vaccines and a Weak Dollar
Global Investment Funds Also Moving to Emerging Markets

[Asia Economy Reporter Minji Lee] As expectations rise for the development of a novel coronavirus (COVID-19) vaccine and the dollar remains weak, investment sentiment toward Asia and emerging markets is reviving. These markets had experienced prolonged stagnation in returns due to foreign investors withdrawing amid the COVID-19 impact, but recently, with an influx of investment funds, they have outperformed developed market fund returns.

According to financial information firm FnGuide on the 26th, as of the 25th, among overseas regional funds over the past month, the fund with the highest return was the Latin America fund, recording a 10.12% return. This was followed by Emerging Europe (9.5%), India (7.09%), Russia (7.34%), Emerging Asia (6.35%), and Global Emerging (6.11%). In contrast, North American funds, which had shown outstanding returns after the COVID-19 impact, dropped to 2.4%. Looking at a broader period of three months, North American fund returns were only 2.78%, while funds investing in Vietnam (13.39%) and Latin America (10.84%) posted double-digit returns.

While investors in developed market funds have increased profit-taking, there has been active movement toward investing in emerging market and Asia funds. If a COVID-19 vaccine is developed and the weak dollar environment continues, market investors foresee greater potential for further increases in emerging market and Asian stocks and bonds.

Global investors’ attention is also shifting toward emerging markets and Asia. According to The Wall Street Journal (WSJ), funds flowing into emerging market stocks and bonds reached approximately 11.96 trillion KRW (10.8 billion USD), marking an all-time high. Foreign investors have also net purchased about 7 trillion KRW in the domestic stock market, which recently hit record highs.

The intensity of capital inflows is stronger in Asia than in emerging markets overall. In the bond market, the yuan’s strength following the election of U.S. President Joe Biden and expectations of economic recovery have sustained a favorable supply-demand environment with currency appreciation in Asian countries. Kim Hoo-jung, a researcher at Yuanta Securities, explained, "Although capital inflows continue into commodity-related countries within emerging markets, investors are increasing investments in Asian stock markets, focusing on the IT sector and countries expected to recover quickly from COVID-19 such as Korea, Taiwan, and China. In Emerging Europe, a reversal of funds that exited earlier this year is occurring."

Domestic investors are also increasing their allocation to Asian stocks, centered on China. Over the past month, funds invested in China amounted to 27.2 billion KRW, and investments in the Asia-Pacific region excluding Japan?including Korea, Hong Kong, and Singapore?reached 39 billion KRW. Meanwhile, Brazil, Latin America, and Russia saw net outflows of 200 million KRW, 300 million KRW, and 2.8 billion KRW, respectively.

In emerging markets, reflecting vaccine development optimism, returns have improved mainly in Brazil, Russia, and India. This is thanks to increased foreign inflows into each country’s stock markets; the Brazilian Bovespa Index rose about 17% over the past month, and the Russian RTS Index surged 22% this month.

Among Asia and emerging market funds launched domestically with high returns, the top performers were 'Samsung KODEX China Leverage ETF' (10.74%), 'Hanwha Eastern Europe Securities Investment Trust' (10.22%), 'KB China Mainland A-Share Securities Investment Trust' (10.12%), 'Mirae Asset Brazil Russia Sector Representative Securities Investment Trust' (10.11%), and 'Macquarie Power Asia Securities Investment Trust' (9.07%).

This content was produced with the assistance of AI translation services.