India To Outperform Emerging Market Peers, Says EPFR’s Cameron Brandt

Emerging markets, including India, will not see any positive foreign investment for the rest of the year as the “virus” of trade barriers spreads globally. But India will perform relatively better than its Asian peers.

That’s according to Cameron Brandt, director of research at EPFR Informa Financial Intelligence, who believes India still has a reform story to fall back on.

“Longer term, India continues to check many of the boxes that are likely to—at least on relative terms—keep the money going,” Brandt told BloombergQuint in an interview. “Moreover, it remains a defensive trade play and still, as a country, less exposed to international trade than many of the peers in emerging Asia.”

Emerging markets and India have seen foreign capital outflows, especially after the People’s Bank of China—the country’s central bank—set its daily currency reference rate marginally stronger at seven yuan a dollar. Outflows from emerging market equity funds have jumped from an average of around $700 million a week to $5 billion last week, Brandt said, adding he expects at least $4 billion going out this week.

At the same time, India has also been witnessing heavy outflows, due to global headwinds and partially due to a “super-rich tax" that affects foreign investors’ money. Foreigners have net sold nearly $3 billion of local stocks so far in the quarter through Aug. 12, data compiled by Bloomberg show. Just in July, they pulled out Rs 14,818 crore—the highest level since October 2018.

Brandt also doesn’t expect the U.S.-China trade war to be resolved this year.

“My sense is that having let this particular genie out of the bottle, it’s going to be very hard to put it back. The process of erecting trade barriers gives politicians a lot of favors to hand out but once the barriers go up, there’s usually a domestic lobby that tries to keep them in place.” Europe, too, is heading for a “perfect storm” with a worsening situation in U.K., Germany and Italy, he said.

Key Highlights from the interview:

• We’re moving deeper into the election cycle leading up to the 2020 presidential and legislative elections in U.S.
• Don’t see Trump backing down on U.S.-China trade war.
• There was a lot of optimism early in the year that this would work its way out in the second quarter, but it has swung in the other direction and the general sentiment is pretty pessimistic.
• We’re going to have more dispiriting news in Europe for the rest of the year.
• No huge positive flows into India or emerging markets for the rest of the year.

Watch the entire conversation here: