During rate cut cycles FIIs raise EM allocations, but it could be different this time: A Balasubramanian

As central banks across the globe, including the U.S. Federal Reserve, potentially embark on rate-cut cycles, foreign institutional investors (FIIs) traditionally increase their allocations in emerging markets (EMs) due to attractive valuations and growth prospects. However, this time, there might be a deviation from this norm. Factors such as global economic uncertainty, shifting geopolitical landscapes, and changing market dynamics could influence FIIs' decisions. The article highlights that while rate cuts usually signal a supportive environment for emerging markets, the current economic and financial climate presents unique challenges. For instance, concerns over inflation, potential recessions, and varying recovery rates post-pandemic could make FIIs cautious about ramping up their investments in EMs. Thus, the usual trend of heightened EM allocations during rate-cut cycles might not fully apply this time.