The Flying Dutchman: Korea in focus; mainland China holdings at five-year highs

Research evidence excerpt

The Flying Dutchman: Korea in focus; mainland China holdings at five-year highs

. In May, funds significantly

increased their exposure to mainland China, while narrowing their underweight in India. Funds

modestly increased their allocations to North Asian markets of Korea and Taiwan. In contrast,

exposure to LatAm markets of Brazil and Mexico witnessed sharp cuts. Within ASEAN, allocations

to Malaysia were increased while holdings in the other markets were scaled back. Taiwan and

India rank among the largest underweights on a z-score basis (Exhibit 4).

Calculation methodology. We have developed a proprietary dataset to assess how funds with a

mandate to invest in Asia ex-Japan and GEM markets are positioned across Asian markets. For

this analysis, we focus entirely on active funds and do not include hedge funds, ETFs, retail

investors, corporates, or domestic institutions.

We source the fund holding details from Factset and use that data to calculate fund allocations to

Asian markets. We then compare these allocations to the weight of each market in the underlying

benchmark to determine the active weights (overweight and underweight positions). We also

compare the active weights to history by looking at their five-year z-scores. A z-score of 1.64

implies that active weights have been higher only 5% of the time. We receive the data on a

monthly basis, with a lag of three to four weeks.

We have recently transitioned our database from Morningstar to Factset. Our dataset covers 300

GEM funds and 100 Asia funds, with total AUM of USD670bn and USD60bn, respectively.

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1 FII flows are net flows into equity markets. Data is available on a daily basis for seven Asian markets. For Asia, we

consider ex-Japan & mainland China flows.