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Emerging markets back in vogue

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Antoine Lesné, Head of SPDR ETF Strategy & Research EMEA reports that emerging markets (EM) are back in vogue following an exodus from the asset class last year.

 He writes that year to date the MSCI Emerging Markets Index is up by 15.5 per cent, whereas the MSCI World Index is up a mere 6.4 per cent, as the outlook for EM has improved coupled with accommodative monetary policies globally.
 
“Emerging market equities were the ‘pain trade’ of 2015 as concerns over a Chinese hard landing painted a bleak outlook, and the start of the US Federal Reserve’s interest rate hiking cycle put additional pressure on investor sentiment that was already fragile,”  Lesné writes.
 
“What followed was an aggressive repositioning amid the mounting headwinds as investors headed for the exits. Given China’s significance for the performance of EM economies and commodities, signs of improvement there have been a welcome indication of near-term stabilisation – the August Caixin Composite PMI came in at 51.8 having moved back into expansionary territory since March.”
 
Since bottoming out in January 2016, EM equities have pared back on the lost ground and Lesné says that the market is still near the trough levels seen around the ‘Taper Tantrum’ in 2013 when the Fed was starting to unwind its easy monetary policy. Therefore, coming from a low base of investor positioning, flows into the asset class have been strong and have responded to the re-pricing of fundamentals and shallower rate hike path by the Fed.

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