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Investors Love Asia, But No So Much Japan – Forbes

Japanese Prime Minister Shinzo Abe at a press conference on August 3, 2017. Abe dumped arch-conservatives and embraced critical voices in a cabinet revamp he hopes will stem a decline in popularity after a series of scandals have turned off investors. (Photo by TOSHIFUMI KITAMURA/AFP/Getty Images)

Japan is no longer the hot market it was going into 2017. And that Chinese hard landing? Yeah, forget about it.

The ongoing inflow streak into Asia ex-Japan funds is now in its 13th week, with $1.6 billion of fresh money pouring into ETFs and mutual funds tracked by EPFR Global in Cambridge, Mass.

Asian markets, namely China and India equity, have taken the lion’s share of global emerging market money in the week ending Aug. 2, which stood at $2.2 billion total over a five day period.

To put that into percentage terms, Asia is 71% of emerging market money right now. Minus Japan. In order, South Korea, China and India saw the largest demand from foreign investors, according to EPFR.

In market terms, the iShares MSCI Japan (EWJ) is being clobbered by the iShares MSCI China (MCHI), Wisdom Tree India (EPI) and the iShares MSCI Asia Ex-Japan (BAJIX) ETFs year-to-date. Japan equities are up around 13%, 50% below those other benchmark funds.

On balance, investor confidence in Indian Prime Minister Narendra Modi has helped make India ETFs one of the best emerging market buys all year.  (Photo by ODED BALILTY/AFP/Getty Images)

No China Hard Landing. And India Great Again

India was the darling of emerging markets earlier this year. It’s back, though investors will likely start to turn towards undercrowded, beat down markets like Russia and Brazil in search of value.

Nevertheless, the best emerging market story is happening once again in Asia. As Japan chugs along at stagnation and faces a demographics challenge, China, India, and Korea are climbing the social ladder.

Growth in the region has held up well this year.  Export markets have been a positive, with spillovers to domestic demand, namely corporate investment.

In China, private sector activity growth has accelerated, which coupled with better exports has offset the slowdown in credit-intensive public investment, say Morgan Stanley analysts led by Chetan Ahya.

“Despite the counter-cyclical withdrawal of policy support, growth has remained above the government’s target,” Ahya wrote in a note to clients on Friday.

In India, second quarter growth is expected to be as good — or better — than the first.

Korea’s second quarter corporate earnings are likely to have moderated somewhat because of a slowdown in exports, but domestic demand is improving and companies are investing.

Better than Bezos. China billionaire Jack Ma at Alibaba Xixi Park on July 13, 2017, in Hangzhou. Alibaba Xixi Park, also known as Taobao City, has more than 12 thousand employees. Last year, Alibaba became the world’s largest retail trading platform. (Photo by Wang He/Getty Images)

Face it China haters, China is in good shape. India may be too slow to reform due to the democratic nature of things, but it is doing well and Prime Minister Narendra Modi is doing what he promised. The recent passing of the goods and services tax legislation is a case in point. It came later than expected, but it got done, nonetheless.

Morgan Stanley’s Asia economists expect a continuation of credit tightening, though the primary policy tool in China in particular to fight credit bubbles has shifted to coordinated regulatory action rather than incremental hikes in interbank loan rates.

India’s central bank is expected to keep its monetary policy rates stable until the first half of next year.

Overall, the Asia ex-Japan growth outlook is bright. The global economy is moving in the right direction, and that’s good for China — an exporting juggernaut. China’s growth will probably moderate in the second half followed by a better than expected first half, but private sector growth will continue to mitigate the impact of weaker state enterprises. Morgan Stanely’s Asia team are not hard landing aficionados by any means.

The consumer story is keeping a pace, too.

Indians and Chinese are earning more money. Growth quality in the region is improving due to stronger productivity and crackdowns on certain industries notorious for supply gluts.

All told, cumulative year to date money flow in global emerging market funds hit a historic peak of $41.8 billion, according to EPFR Global. Asian fund outflows have slowed to trickle. Only $98 million has been cashed out of dedicated Asian ex-Japan mutual funds and ETFs this year, EPFR says.

Find me on Twitter at @BRICBreaker

Investors Love Asia, But No So Much Japan – Forbes}

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