Profit-taking and not the start of a bear market: JF Asset Management

What is the redemption picture now?
We are seeing significant redemptions and are definitely undergoing a major correction, which is not surprising given how much markets have rallied. What was interesting is that last year we have been seeing redemption from Indian funds, particularly from the European clients. There has also been gross buying as well.

In Asia, our clients have been less inclined to sell in India and in other emerging market funds, instead are looking for a good entry point in these markets. This indicates that there are still strong investor interests in these markets.

What we are seeing is in fact more of a technical correction; profit taking and not the start of a bear market.

For the markets to become bearish in nature there has to be a global inflation problem, or the Fed will continue to raise interest rates aggressively. However, this is not our view.

Could you quantify how much you would have lost from Indian funds specifically over the last one month?
I can't give you a figure in total. In one of our largest Indian mutual funds, we have seen some moderate outflows. For the market overall I think we saw some figures around $3 billion. That is basically about half the net inflows in the first quarter, and now that has been reversed.

There has been a significant mutual fund buying in India. Investors in Asia who are closer to the Indian markets and who are driven more by the fundamentals and less by the drive for higher BETA, are less concerned and more inclined to wait and increase their exposures.

While there has been some heavy selling in Europe, there also has been gross buying as well. That indicates that there are investors who are coming into the Indian market, seeing that there is a 15 per cent correction in the index, from a long-term point of view, as a good entry level.

Is this buying for India specific funds or for BRICs funds?
The figure I quoted then would be for all India funds, that is a capital account figure. We are more inclined to advice investors to go for a global emerging market rather than a BRICs fund. BRIC is more of a marketing concept, the four countries Brazil, Russia, India and China, comprise about 30-35 per cent of the Morgan Stanley Capital International global emerging markets index.

You still have a very wide universe and many attractive opportunities elsewhere. For most clients we would say a global emerging market fund gives you more opportunities to diversify. So BRIC is a bit too concentrated from our point of view.

Have you started buying into India or are you waiting for a bit?
I would not like to comment on advance on what our fund managers are doing. We tend to rank countries in Asia Pacific on a scale from 1-5 from a top down consideration. Let us not forget that JF Asset Management primarily does bottom up.

Stock picking is our style and our strength but India is our No. 1 ranked market and we have upgraded it after this correction. So now India and China are both our favourite markets in the region.

You spoke about redemptions coming in from Europe but did you see any redemptions coming in the last one month from Japan?
We have not seen as much as one might have expected. The Japanese seem to be quite willing to invest in some of the overseas equity market more so than in their own domestic markets. It is when the domestic investors start buying into Japan we will see the next real leg in the top picks rally.