Retail investors transitioning from US equities to emerging markets, specifically China and Brazil, have been noted this year, driven by more attractive valuations and a substantial uptick in outbound remittances. Notable increases in ETF investments signal growing interest in these emerging markets, contrasting with the modest growth of US-focused investments.
Retail investors in the United States are exploring fresh opportunities in emerging markets, particularly in China and Brazil. Recent data from various brokerage platforms indicate a notable shift among Indian investors who are utilizing the Reserve Bank of India’s liberalized remittance scheme (LRS) to venture beyond US equities, which have faced challenges in recent months due to geopolitical tensions, including the tariff war initiated by former President Donald Trump.
According to interviews with six brokers, investments in China and Brazil-focused exchange-traded funds (ETFs) have surged in comparison to the US market. Notably, interest in China-oriented ETFs grew significantly, especially from January through March. Sitashwa Srivastava, CEO of Borderless, noted, “After January and especially through February and March, there has been growing interest in China, particularly in China-oriented ETFs… a time where we noticed a bit of a de-focus on the US.”
At Vested Finance, Brazil-focused ETFs saw investments rise to $3 million in 2025, a staggering jump from previous years. Simultaneously, China-focused ETFs saw an increase to $10 million from the 2024 figures. While investments in US ETFs via Vested reached $80 million during the same period, the growth rate paled in comparison to the shifts seen in the Latin American and Asian markets.
Data from Appreciate Wealth corroborates these findings, illustrating that China secured a 36% increase in trade volumes and a 61% increase in investment value this year. Brazil outperformed with a remarkable 110% rise in volumes and an astounding 245% rise in investment value. Comparatively, US-focused investments on that platform saw modest growth of just 11% in volume and 18% in value, signifying a broader trend away from traditional markets.
The pivot toward Brazilian and Chinese equities is chiefly driven by more appealing valuations. The Dow Jones has tumbled by 6.57% this year while both the Shanghai Composite and Brazil’s IBovespa have shown resilience, gaining 1.06% and 10.7%, respectively. As of January 2025, Brazil’s Ibovespa exhibited a trailing valuation of 10.8x, substantially lower than the Dow’s valuation of 23.21x.
This increased investment trend coincides with a significant uptick in outbound remittances for equity and debt investments, with February seeing a 65% month-on-month boost to $173.84 million. Overall, LRS investments increased 20% on a yearly basis to $1.51 billion for the fiscal year ending 2024. Over the last five years, this metric has dramatically escalated from only $422 million in 2019.
Mayuresh Kini, co-founder of Zinc Money, mentioned a growing preference among Indian investors for technology stocks tied to China, adding, “We are seeing an increased interest from Indian investors to buy China stocks, especially the China Tech ETF.” Shrivastava noted further that sectors such as energy and electric vehicles are also attracting investor attention.
Viram Shah, CEO of Vested Finance, remarked on investors rotating into less crowded trades in markets like China and Brazil, which are seen as havens for potential recovery. He pointed out the challenges facing US markets, especially large-cap tech stocks, noting risks like elevated valuations and geopolitical tensions.
Brazil’s distinct appeal lies in its reasonable valuations and a recovering economy. Ankita Pathak of Ionic Asset explained that the OECD’s forecast of 2.5-3% growth for Brazil in 2025 makes the market especially attractive. “With the OECD raising growth forecasts to 2.5-3% for 2025… investors see strong macro tailwinds,” she asserted.
Despite the US remaining a key investment hub, many experts contend that investors with substantial US exposure are now searching for diversification amidst economic uncertainty. A source from an asset management company stated, “With growing concerns around tariffs, recession risks, and broader uncertainty in the US, some are exploring diversification opportunities like China and Brazil.”
Looking ahead, analysts believe that while challenges such as higher tariffs from the US persist, China’s economic story remains robust due to its strength in domestic markets. Pathak concluded, “The reason China hasn’t collapsed… is because it’s operating from a position of strength, and there are many Chinese businesses that are not dependent on the US.”
In summary, Indian retail investors are increasingly shifting their focus from US equities to emerging markets such as China and Brazil, amid appealing valuations and a desire for diversification. This trend is evidenced by substantial growth in investments in China and Brazil-focused ETFs, coupled with a significant increase in outbound remittances. While the US continues to dominate the investment landscape, experts suggest that growing concerns around geopolitical risks have prompted investors to explore more stable opportunities in these markets.
Original Source: www.livemint.com
