[New Money Move] ③ Emerging Markets Led by China Are the Ones to Watch

Interest in China Surges with Stimulus Measures from March Two Sessions
17 Trillion Won Poured into Emerging Market Investment ETFs in January

[Asia Economy Reporter Park So-yeon] This year, emerging markets including China, India, and Brazil are considered investment destinations with the potential for higher returns than advanced countries such as the United States. In particular, capital movement to emerging markets is prominent due to economic recovery expectations following China's reopening. Since the end of last year, there has been a rapid inflow of funds into exchange-traded funds (ETFs) investing in emerging market stock markets. Expectations are also growing for economic stimulus measures to be announced at the March Two Sessions (National People's Congress and Chinese People's Political Consultative Conference), where the Chinese government's operational policies will be determined.

On the 1st, looking at the overall ETF returns over the past three months from the Korea Exchange Information Data System, the top five are all related to China. The top-performing ETF, TIGER China Hang Seng Tech Leverage (Synthetic H), recorded a three-month return of 121.76%. Following that, KODEX China H Leverage (H) posted 100.38%, KBSTAR China MSCI China (H) 48.43%, KB STAR China HSCEI (H) 44.41%, and TIGER Emerging Market MSCI Leverage (Synthetic H) 44.27% returns.

Expanding to the global market, funds that had withdrawn from emerging markets until the end of last year are flowing back in this year. According to Bloomberg and Daol Investment & Securities, capital inflows into ETFs investing in emerging markets and other regions outside the U.S. surged to $14 billion (approximately 17.3 trillion KRW) in January this year. This contrasts with the negative figures recorded in November last year. According to CNBC, Bank of America investors invested $12.7 billion (15.7 trillion KRW) in emerging market equity and bond funds over the past week. This is a markedly different trend from a few months ago when investors avoided China due to its zero-COVID policy.

The biggest reason is the stabilization of the dollar's value. If the U.S. Federal Reserve halts interest rate hikes, the dollar's value declines, increasing the attractiveness of investments in emerging markets. The Dollar Index, which shows the value of the dollar against six major currencies, closed at 102.10 on January 31. Compared to the peak of 114.78 in September last year, it has fallen by 11.04%. An index above 100 means the dollar's value has increased, while below 100 indicates a decline. China's reopening and domestic demand stimulus announcements are also key variables. The Chinese government is expected to roll out domestic demand stimulation and major industry promotion policies by March. Experts believe these policies will soon translate into investment returns in the Chinese market.

Earlier, at the December economic work conference in China, hints about the country's economic policy direction were revealed. These include active domestic demand expansion, establishment of a modern industrial system, joint development of state-owned and private economies, foreign investment attraction and external openness, and prevention of economic and financial risks. These are expected to be presented as concrete policies through local Two Sessions in January and February and the national Two Sessions in March. Rather than pushing for excessive reforms to counter downward economic pressure, the focus is on defending against economic downturns, which is positive for investors. Emphasis is placed on stimulating domestic demand, investing in new technology sectors, and stabilizing the real estate market. Kim Jeong-hyun, head of the ETF Operation Center at Shinhan Asset Management, said, "In recent years, overseas investments have mainly increased centered on the U.S., but from this year, it is worth paying attention to emerging markets such as China, India, and Vietnam."

Domestic institutions also show strong interest in emerging markets. Han Jong-seok, Chief Investment Officer (CIO) of the Police Mutual Aid Association, mentioned, "Along with China's reopening sectors, we are watching ASEAN countries and India, which are following the path China took in the early 2000s."

If the dollar weakens further, countries like Brazil and Thailand will also attract attention as investment destinations due to reduced foreign currency debt burdens. However, there are also cautious views about excessive investment expansion. Oh In-ah, Executive Director of NH Investment & Securities Premier Blue Gangbuk Center, said, "There is an order in emerging markets, and in fact, we do not touch India and Vietnam yet," adding, "This year, there should be enough opportunities just by focusing on China."