Hang Seng turns flavour for FIIs, jumps 50% in under 8 weeks

Market


FIIs have chosen Hong Kong over costlier India as an investment destination over the past three months and the trend could continue, relegating India to the underperformer slot for the short term at least, said market experts.

The Hang Seng Index has been among the best-performing stock indices since October end, rising a whopping 48% against the Indian benchmark Nifty, which has churned out a flat performance over the same period, courtesy of higher allocation by FIIs.

The HSI has surged 48% between a 52-week low of 14,597 and a closing of 21,578 on January 17. India’s Nifty remained relatively flat between 18012 and 18053 over the same period.

“India has outperformed most EMs in the past year and is costlier with MSCI India Index trading at a 130% valuation premium to MSCI EM Index,” said Jyotivardhan Jaipuria, MD, Valentis Advisors. “Now, there has been a reversal fuelled by China opening up recently, giving consequence to pent-up demand.”

Jaipuria expects India’s underperformance to HSI and China’s Shanghai Composite to continue for a few more months, during which Nifty could trade “sideways” with a “negative” bias.

While FII inflows into Hong Kong were not available, experts cite the outperformance of both HSI and the Shanghai Composite Index as proof of their higher allocations to those markets.

“Valuations are more attractive there (Hong Kong) and China’s opening up has further spurred a rally, which could continue in the short term,” said Nirmal Jain, chairman, IIFL Group. “Long-term India’s fundamentals will play out ensuring the continuation of our outperformance.”

While FIIs sold a total of $16.5 bn of Indian shares in calendar 2022, they net purchased $5.8bn shares in November and December. In January so far, they’ve sold shares worth $2.1bn.

“Tactical, short-term flows are moving into the Chinese market, driven by low valuations,” said Nilesh Shah, MD, Kotak Mahindra AMC. “With the flows, the market (Hong Kong) is moving up and attracting more flows. Till such time as the valuation gap narrows, the virtuous cycle of flows attracting more flows is likely to continue.”

The recent outperformance notwithstanding, HSI is down 10.5% in the past year against a flat performance by the Nifty.


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