Swooning Chinese stock markets have cast a pall on Asian equities this year but how are investors positioned?
According to Goldman Sachs, money managers are still overweight Indian stocks relative to benchmarks, while concerns over capital outflows and worries about market positioning have dented demand for Chinese stocks.
Asian stock markets have suffered hefty outflows since last summer when anxiety over the health of the Chinese economy started to rise.
Year-to-date, Asian equities have seen a cumulative $7.7 billion-worth of foreign selling, with outflows across markets. Foreigners have sold $40 billion worth of emerging market (EM) Asian equities since the start of June, according to Goldman Sachs.
India remains the largest overweight in Asia, although funds have reduced allocations recently. Still, the fact that a large section of the market still thinks Indian stocks will go just one way is a worry.
"With India being a 'consensus long' and a strong overweight within regional/EM funds, investors are worried about potential positioning risks if 'flow pressure' persists, particularly in the light of elevated stock valuations and negative sentiment around EM assets," Goldman says.
According to the investment bank, public sector banks and investment cyclicals are some of the Indian sectors with the strongest ownership levels.