India Overtakes Indonesia as Asia’s Least Preferred Stock Market Amid AI Concerns and Weak Growth
Mumbai, India – India’s equity market has fallen out of favor with global fund managers, replacing Indonesia as Asia’s least preferred investment destination, according to a recent Bank of America Corp. survey. The shift signals growing caution towards what has become one of the world’s worst-performing markets this year, despite some improving fundamental indicators.
The primary concern cited by respondents is India’s "lack of a clear AI exposure," suggesting that investors are increasingly prioritizing markets positioned to capitalize on the burgeoning artificial intelligence sector. This absence of a perceived AI advantage, coupled with "weak growth" emerging as the second most significant risk, has led 32% of the surveyed fund managers to be net underweight on the nation’s equities. Additional factors contributing to this bearish outlook include a perceived lack of structural reforms and high market valuations.
In stark contrast, sentiment towards Indonesia has improved significantly. Only 27% of fund managers reported being net underweight on the Indonesian market in the latest survey, down from 32% in July. This positive shift follows a more than 20% rally in the benchmark Jakarta Composite Index since its June low, driven by central bank measures to stabilize the currency and easing fears of a downgrade to frontier-market status by MSCI Inc.
Meanwhile, Taiwan and Japan continue to hold their positions as investors’ most preferred regions within Asia. The Bank of America survey, conducted between August 7 and August 13, gathered insights from 98 panelists collectively managing $272 billion in assets.
The survey findings align with a recent decline in Indian stocks over the past two weeks, a period during which earnings outlooks have generally improved. This disconnect suggests that investor apprehension persists despite strengthening fundamentals. Indeed, global funds have purchased over $4 billion in local stocks this quarter – the most among regional emerging markets – following record outflows in the first half of the year, according to data compiled by Bloomberg. Furthermore, earnings for members of the benchmark NSE Nifty 50 jumped 18% from last year in the most recent three-month period, surpassing Motilal Oswal Financial Services Ltd.’s estimate of 10% growth.
India’s stock market was previously identified as the least preferred in the BofA poll in May, a period marked by pressure on growth due to rising energy costs stemming from the US-Iran conflict and a subsequent rally in global crude oil prices. With no clear resolution to the conflict in sight, energy prices are once again climbing, further weighing on investor sentiment and contributing to the current cautious outlook.
Despite an 8% rebound from a recent low in March, the Nifty 50 remains the second-worst performing major market in Asia this year, having lost 8% overall. It is now on track to break a historic streak of 10 consecutive years of annual gains, underscoring the challenges currently facing Indian equities.
