Passive long-only funds resumed net purchases of emerging market equities in April, acquiring $12.0 billion of stocks, according to Morgan Stanley’s Asia Flows & Positioning Guide. The report highlights Taiwan, Brazil and China as the main sources of those inflows, while active foreign funds were net sellers, offloading $0.7 billion during the month.
Exchange-level flow data cited by Morgan Stanley showed substantial foreign buying in a number of markets. Foreign investors purchased $8.4 billion of Taiwan-listed equities and $22.4 billion of Japanese equities in April. Korea attracted $0.6 billion of foreign net purchases, while India and Indonesia experienced net outflows of $5.2 billion and $1.0 billion, respectively.
Morgan Stanley’s Prime Brokerage Content Group noted hedge funds increased their positions in Taiwan equities in the final week of April and re-entered Korea after earlier profit-taking. Across Asia excluding Japan, Information Technology accounted for nearly all net hedge-fund inflows during April and now makes up roughly 50% of hedge-fund net portfolios in the region. The report also states that both gross and net hedge-fund exposure to IT in Asia reached levels not seen since 2010.
Examining longer-term shifts, EPFR data for March showed global long-only investors cutting allocations to India and Korea while boosting exposure to Brazil. Sector-level moves by long-only managers included enlarging overweight positions in Capital Goods and trimming underweights in Energy and Materials. At the same time, investors scaled back overweight positions in Semiconductors and further increased underweights in Tech Hardware.
On a stock-by-stock basis, the flow data indicated investors added to positions in CATL, Petrobras and Vista Energy, while reducing stakes in SK Hynix, Samsung Electronics and TSMC.
Japan’s weight in global portfolios reached parity for the first time in 20 years as of the end of March. Within Japan, active long-only managers pared back their underweight in Capital Goods while reducing their overweight in Tech Hardware. The rebalancing included larger overweight positions in IHI and Hitachi, financed in part by smaller positions in Keyence, Tokyo Electron and Mitsui & Co.
Market context and positioning
The month of April saw a return of passive demand into emerging markets, concentrated in a handful of markets and driven at the hedge-fund level by a strong tilt toward Information Technology across Asia ex-Japan. Active managers' selling contrasted with the passive inflows, and regional flows displayed notable divergence with Japan and Taiwan drawing foreign buying while India and Indonesia experienced outflows.