End of negative rates regime in Japan may be disruptive for global fund flows, says EPFR Global

Cameron Brandt, Director, of Research, EPFR Global believes that the end of negative interest rates regime by the Bank of Japan has the potential to be disruptive for fund flows across the world.

However, interest rates will have to move a little higher and a little more consistently for things to unwind.

"So at the moment, most of that (fund flow changes) remains in the realm of theory rather than tangible impact on foreign markets,” he said.

Bank of Japan (BoJ) on March 19 raised its interest rates for the first time since 2007. It increased its short-term interest rates to 0% to 0.1% from the previous -0.1%, as per the statement at the end of the policy meeting.

Sharing his perspective on what the overall equity flows into Asia have been looking like and where India stacks up, he said, “Flows towards emerging Asia have lost considerable momentum over the past 10 days. What we're not seeing is them going to China in any meaningful way. So yes, less money chasing direct exposure to India, no immediate sign that it's rotating towards China, which obviously has its own issues.”

In India, in particular, he said the overall picture is fairly cautious with fund flows at a fairly low ebb. But India still remains strong.

Flows to the diversified global emerging market funds have also picked up a little bit in recent weeks but are still fairly muted, he said.

“Within those GEM funds, India’s allocation continues to climb. It is at a record high at the moment but unfortunately, since those funds aren’t getting much fresh money allocated, it doesn’t do much good to India as it might in more broadly enthusiastic periods for EMs,” he explained.

In terms of other asset classes, he believes that gold funds have not been popular and the obvious alternative has been the cryptocurrency funds. However, in the past 10 days or so that has changed and a bit of a crossover has been seen. “So it could be that gold funds will start to do as well as the price of gold suggests,” he said.