In more than half of the countries covered by our researchers, at least 50% of fund selectors are stepping up their allocation to the asset class. EM equity sentiment has witnessed an unprecedented surge during the past three months. Back in March, appetite for the asset class was still hovering around all-time lows.
The sentiment revival follows a spike in fund flows to emerging market equities this year.
Catching up
Fund selectors in Central and Northern Europe are the most outspoken emerging markets enthusiasts. In France and Belgium, respectively 55% and 60% of fund selectors are planning to increase exposure. In Norway and Finland, the figure is even higher with 67% and 70% buyers.
“The emerging markets growth story is still very much valid. Though growth is weaker now percentage-wise, emerging economies are still growing quite fast and so do earnings,” says Tim Peeters of Belgian wealth manager Portolani, reminding that EM stock markets are lagging behind versus developed markets by approximately 30% over the past 18 months (see graph below).
“I see emerging markets catching up this backlog within three years. Investors have been punishing EM stocks for the volatility in their currencies and their higher interest rates, but haven’t fully appreciated that their competitiveness on the export market has actually improved”, Peeters notes.
Danish pioneers
Denmark, where half of fund selectors will increase allocation to the asset class in the next 12 months, was one of the countries where EM equity sentiment rebounded first. Already in April, four in ten fund buyers were increasing their exposure.
Allan Møller, head of fund selection for Danske Capital, prophesised a bounce-back in EM equity sentiment last March, and has recently stepped up his allocation to the asset class. “We are positive in general, but we are still selective. We believe in an economic uptick in China, and are therefore especially bullish on commodity-exposed equities”, he says.
Rishma Moennasing, an equity fund selector at Rabobank in The Netherlands, is not increasing her allocation to emerging markets equities, but that’s because she is one of the rare investors who have always kept their confidence in emerging markets.
“We have been overweight emerging markets for years now. In the equity part of our portfolio we now have a weighting of about 18% to emerging markets. This used to be even 30%, but we are still pretty overweight versus the benchmark”, she says.
