“The realized volatility of MSCI China surged from 20% in late December to above 30% in mid-February on an annualized basis, which made keeping a deep underweight on China a highly risky position for most regional funds,” the strategists said.They added that Asia ex-Japan funds and emerging markets funds domiciled in the US and Europe have reduced their underweight stance on China in February. Equities in mainland China and Hong Kong saw $2.2 billion of outflows on a net basis last month — 95% of which can be attributed to investors’ redemptions — compared with $2.6 billion in January, they said, citing EPFR data.
The moderation in outflows may be an early sign that money managers are rethinking their asset allocations across the region. Some funds have begun trimming rival India’s holdings citing excessive valuations and better risk-reward elsewhere, a shift that can bode well for China to regain its lost heft in global portfolios.
