Emerging markets break out

Emerging markets break out

about 5 years ago1 min

Mentioned in story

Investors stewarding a total of $515 billion responded to Bank of America Merrill Lynch’s latest monthly survey, answering questions on how they’ve been investing and what their predictions are for the future.

Their big idea: look to the rising sun in the east ☀️

Only three months ago, investors’ third-most popular trade was “short emerging markets” – i.e. betting against EMs’ rise. Now, in a surprising turn of events, 18% of investors say they’re buying EM assets. It’s the first time in the survey’s history that “long EM” has been the most popular trade 📈

OMG, EMs are so hot right now
OMG, EMs are so hot right now

One likely reason for investors’ change of tack is the Fed’s pause on interest rate hikes. This gives emerging markets a breather when it comes to the rising cost of paying back their US dollar-denominated debt – and makes them a more attractive investment prospect 💅

Despite their appetite for the relative risk of EM assets, investors aren’t necessarily feeling partial to all risk. The same survey showed investors have been selling stocks while ploughing more money into cash. Indeed, the proportion of investors with excess cash holdings is now the highest since the financial crisis.

Investors are hoarding cash
Investors are hoarding cash

Surveyed investors said that the US-China trade war was the biggest risk for markets going forward, since China’s economic health reverberates around the global economy. Talks between the US and China are ongoing – but without a resolution, we’re in for more tariffs come March 📆

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