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Yahoo
23-05-2025
- Business
- Yahoo
Emerging market equity funds lure investors fleeing overvalued U.S. assets
By Patturaja Murugaboopathy and Johann M Cherian (Reuters) -Emerging market equity funds are leading the global performance this year, bolstered by attractive valuations, years of under-positioning by investors and an easing of economic pressures after U.S. President Donald Trump's pause on tariffs. According to data compiled by LSEG, funds tracking equities in Latin America and emerging Europe have each gained around 24% so far this year, while broader emerging market equity funds are up 9.3%. Notably, equity funds focused on Morocco, Colombia, Greece, Brazil, and Portugal have each returned more than 30% this year. In comparison, U.S.-focused equity funds have returned just 0.17%, and global equity funds are up 6.8%. The outperformance of emerging markets marks a reversal after their years of lagging developed markets, during which U.S. equities, driven by the AI-led tech rally, delivered stellar index gains. This year, however, investors have been selling U.S. assets as worries over possible recession, fiscal instability and Trump's erratic policies shake their faith in the dollar. LSEG Lipper data showed dedicated EM equity funds have attracted $10.6 billion in inflows in the first five months of the year, a 43% increase over the same period last year. Malcolm Dorson, emerging markets senior portfolio manager at GlobalX, attributed this to how under-owned emerging market equities are. U.S. investors allocate just 3–5% to emerging markets, well below the 10.5% weighting in the MSCI Global Index and far short of their roughly 25% share of global market capitalisation, he said. "Allocators are dangerously short a deeply discounted and fast-growing asset class," he said. Analysts also highlight improving fundamentals. Latin American countries are largely insulated from tariffs, given their trade deficits with the U.S., while Asian economies are pivoting toward domestic consumption. Further, upgraded its rating on emerging market stocks to "overweight" from "neutral" earlier this week. It said it expects all central banks across developing economies, excluding Brazil, to ease monetary policy, which could increase economic activity and the attractiveness of equity markets. Gains in tech stocks have buoyed Chinese and Hong Kong equities, drawing renewed interest from foreign investors seeking to invest in artificial intelligence and other low-cost tech firms such as DeepSeek. There are opportunities in Mexico and Brazil, which have remained resilient despite trade tensions, according to Alison Shimada, portfolio manager at Allspring Global Investments. "The China consumer story is especially interesting right now," she said. "Beijing is very focused on stimulating the consumer economy. India may be overbought, but there are pockets of opportunity such as power companies and non-bank financials." At the end of last month, the MSCI Emerging Markets Index was trading at a forward 12-month price-to-earnings ratio (P/E) of 11.96, just below its 10-year average of 12.1. In contrast, the MSCI USA and MSCI World indexes were trading at 20.5 and 18.1, well above their 10-year averages of 18.8 and 16.9, respectively. (Reporting By Patturaja Murugaboopathy in Bengaluru and Johann M Cherian in Singapore; Editing by Janane Venkatraman) Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
23-05-2025
- Business
- Yahoo
Emerging market equity funds lure investors fleeing overvalued U.S. assets
By Patturaja Murugaboopathy and Johann M Cherian (Reuters) -Emerging market equity funds are leading the global performance this year, bolstered by attractive valuations, years of under-positioning by investors and an easing of economic pressures after U.S. President Donald Trump's pause on tariffs. According to data compiled by LSEG, funds tracking equities in Latin America and emerging Europe have each gained around 24% so far this year, while broader emerging market equity funds are up 9.3%. Notably, equity funds focused on Morocco, Colombia, Greece, Brazil, and Portugal have each returned more than 30% this year. In comparison, U.S.-focused equity funds have returned just 0.17%, and global equity funds are up 6.8%. The outperformance of emerging markets marks a reversal after their years of lagging developed markets, during which U.S. equities, driven by the AI-led tech rally, delivered stellar index gains. This year, however, investors have been selling U.S. assets as worries over possible recession, fiscal instability and Trump's erratic policies shake their faith in the dollar. LSEG Lipper data showed dedicated EM equity funds have attracted $10.6 billion in inflows in the first five months of the year, a 43% increase over the same period last year. Malcolm Dorson, emerging markets senior portfolio manager at GlobalX, attributed this to how under-owned emerging market equities are. U.S. investors allocate just 3–5% to emerging markets, well below the 10.5% weighting in the MSCI Global Index and far short of their roughly 25% share of global market capitalisation, he said. "Allocators are dangerously short a deeply discounted and fast-growing asset class," he said. Analysts also highlight improving fundamentals. Latin American countries are largely insulated from tariffs, given their trade deficits with the U.S., while Asian economies are pivoting toward domestic consumption. Further, upgraded its rating on emerging market stocks to "overweight" from "neutral" earlier this week. It said it expects all central banks across developing economies, excluding Brazil, to ease monetary policy, which could increase economic activity and the attractiveness of equity markets. Gains in tech stocks have buoyed Chinese and Hong Kong equities, drawing renewed interest from foreign investors seeking to invest in artificial intelligence and other low-cost tech firms such as DeepSeek. There are opportunities in Mexico and Brazil, which have remained resilient despite trade tensions, according to Alison Shimada, portfolio manager at Allspring Global Investments. "The China consumer story is especially interesting right now," she said. "Beijing is very focused on stimulating the consumer economy. India may be overbought, but there are pockets of opportunity such as power companies and non-bank financials." At the end of last month, the MSCI Emerging Markets Index was trading at a forward 12-month price-to-earnings ratio (P/E) of 11.96, just below its 10-year average of 12.1. In contrast, the MSCI USA and MSCI World indexes were trading at 20.5 and 18.1, well above their 10-year averages of 18.8 and 16.9, respectively. (Reporting By Patturaja Murugaboopathy in Bengaluru and Johann M Cherian in Singapore; Editing by Janane Venkatraman)
CNBC
21-05-2025
- Business
- CNBC
Emerging markets are the next 'bull market' as the sell U.S. narrative gains ground
Emerging markets stocks are in the spotlight again as the "sell U.S." narrative gained fresh momentum, following Moody's recent downgrade of the U.S. credit rating. The Bank of America heralded emerging markets as "the next bull market" recently. "Weaker U.S. dollar, U.S. bond yield top, China economic recovery…nothing will work better than emerging market stocks," Bank of America's team, led by investment strategist Michael Hartnett, said in a note. Similarly, JPMorgan upgraded emerging market equities from neutral to overweight on Monday, citing thawing U.S.-China trade tensions and attractive valuations. A dented confidence in U.S. assets, which kicked into high gear last month marked by a selloff in U.S. Treasurys, equities and greenback, has fueled the bullishness for emerging markets. The MSCI Emerging Markets Index, which tracks large and mid-cap representation across 24 EM countries, is up 8.55% year-to-date. This compares against a 1% climb by the U.S. benchmark S&P 500 across the same period. The difference was more stark in the weeks after April 2, when U.S. President Donald Trump unveiled "reciprocal" tariffs on friends and foes alike. While most benchmarks fell across the board in the immediate days after April 2, the week that followed showed a divergence between emerging market equities and U.S. stocks. Between April 9 to 21, the S&P 500 declined over 5%, while the MSCI Emerging Markets Index rose 7%. Even though U.S. equities and Treasurys rebounded slightly since, the recent Moody's downgrade has reignited traders' concerns. On Monday, the U.S. 30-year Treasury yield briefly grazed above 5% to hit levels not seen since November 2023, while U.S. equities also snapped a six-day winning streak on Tuesday. The events that unfolded recently have reinforced the need for more diverse geographical exposure, said Malcolm Dorson, head of the active investment team at Global X ETFs. "After underperforming the S&P over the past decade, EM equities are uniquely positioned to outperform over the next cycle," he added. "This possible perfect storm stems from a potentially weaker U.S. dollar, extremely low investor positioning, and outsized growth at discounted valuations," he told CNBC. According to data provided by Dorson, in terms of positioning, many U.S. investors have just 3% to 5% in emerging markets, compared to the 10.5% in the MSCI Global Index, which captures the performance of large and mid-cap companies across 23 developed markets. Emerging markets are also trading at 12 times forward earnings "and at a bigger than typical discount" compared to developed markets, statistics from JPMorgan showed. Among emerging markets, Dorson believes India offers the best long-term growth play and spotlighted Argentina's cheap valuation. Sovereign upgrades in countries like Greece and Brazil also helped to make them more attractive, he added. "We could be at the start of a new rotation," said Mohit Mirpuri, equity fund manager at SGMC Capital. "After years of U.S. outperformance, global investors are beginning to look elsewhere for diversification and long-term returns, and emerging markets are firmly back in the conversation," Mirpuri said. A weakening U.S. dollar — pressured by fiscal concerns and rising debt — has historically supported EM flows and FX stability, said a portfolio manager at VanEck, Ola El-Shawarby. But what could set the current optimism apart from previous emerging market rallies that fizzled out? "We've seen EM rallies before that ultimately lost steam, often because they were driven by short-term macro catalysts," said El-Shawarby. This current cycle could be different because of the combination of deeply discounted valuations, historically low investor positioning, and more durable structural progress across key markets, she said, citing India's long-term growth story anchored in domestic demand.
