Lloyds says a survey it commissioned has found sentiment is improving after a long period of deterioration or stagnation. Lloyds said ‘net sentiment’ among investors in emerging market shares rose to 19% from 15% since last month, representing a big swing from the previous month where sentiment deteriorated 3%.
The survey asks investors whether they have a positive, neutral or negative view on the prospects for a given asset class and uses this to calculate a net figure. The 4% rise is the highest of any asset class covered by the survey.
The data also show a drop-off in sentiment towards US stocks, with net sentiment falling 4% to 15%. Lloyds said this finding indicates a building view among investors that valuations may have gone too far, with economic recovery already fully priced in. Particularly harsh weather conditions hitting company earnings may also be playing a role in this, the bank said.
The degree to which this sentiment translates into actions taken by fund managers it yet to become clear although changes are taking place already. “We have gone to neutral recently having been underweight in emerging markets for around two years,” said Rob Burdett, co-head of F&C’s multi-manager team. “We remain sceptical for now though so whether we go overweight remains to be seen,” he added.
“We have been seeing early signs of a recovery in investor appetite towards emerging market shares, with anecdotal evidence on investor fund-flows into emerging market-dedicated exchange-traded funds suggesting as much," said head of investment policy at Lloyds Ashish Misra. “Indeed, our own client portfolios reflect this and are close to a neutral allocation relative to benchmark,” he added.
Misra went on to say these findings may add weight to the developing view that emerging markets have weathered the volatility in their currency and bond markets arising from Fed tapering better than investors had feared.
He also noted the ‘counter-intuitive’, persistent and largely unexpected weakness of the US dollar has allayed fears of a mass unwind of dollar-funded trade in emerging markets and the volatility means there is an ‘attractive valuation gap’ between emerging and developed markets now.
