Emerging market equities losing charm as investors flock to the US
Apart from rising protectionism, the interest rate hike by US Federal Reserve does not bode well for emerging market assets. No wonder EM equity funds are seeing sharp outflows
Emerging market (EM) equities are losing charm as global investors now prefer US stocks instead.
“EM equities allocation falls again after massive drop last month, down -5% to net 22% overweight & well off the April’18 high of 43% as investors sell EM equities to buy US equities,” said the latest survey of global fund managers by Bank of America Merrill Lynch.
The biggest fear for investors is a trade war between the US and other countries, said the survey.
Despite that, fund managers are overweight on US equities for the first time in 15 months as they anticipate strong earnings performances from American companies.
Apart from rising protectionism, the interest rate hike by the US Federal Reserve does not bode well for EM assets. No wonder EM equity funds are seeing sharp outflows.
“With another hike in US interest rates expected next week, EPFR-tracked Emerging Markets Equity Funds posted their third consecutive outflow during the first week of June. Retail redemptions, which hit a 38-week high in late May, exceeded $300 million for the fourth week running,” said fund flow tracker EPFR Global’s report dated 6 June.
The report pointed out that India is struggling to retain investor interest despite its reform story and strong GDP growth.
“India Equity Funds have now posted outflows 13 of the past 16 weeks. Rising inflation, which prompted India’s central bank to hike its benchmark interest rate for the first time since 2014, weak business investment and next year’s general election are all giving investors pause for thought,” added the EPFR Global report.
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