The firm will be reducing its allocation to equity, bond and currency markets, citing a widening risk gap between the BRICs and US market.
Unimproved macro policies in the countries with the most negative current account dynamics and a shortfall in economic data and earnings momentum statistics in comparison to developed markets were also said to be motivating factors for the move.
The firm has reduced its emerging markets exposure from overweight to neutral, a contrarian view given that equity fund flows and investor surveys are generally overweight. ING IM said this makes the markets vulnerable to bad news.
According to Valentijn van Nieuwenhuijzen, head of strategy at ING IM, larger emerging market current account deficits have been financed largely on debt flows, but as the situation in the developed markets improve, these flows are likely to fall. The countries causing the most concern, he said, are India, Indonesia, South Africa and Turkey which all have high or increasingly high deficits.
Van Nieuwenhuijzen said: “Given their large macro imbalances, the currencies of these four markets remain vulnerable to a sharp correction. All four countries rely heavily on speculative inflows. India and South Africa have large structural deficits and need a political breakthrough to tighten economic policies and carry out structural reforms. At this point, it is difficult to see much progress in the coming years. Turkey looks better, because the fiscal accounts are in good shape, and the current account deficit has been narrowing. Here, it is the large energy import bill that keeps pressure on the balance of payments.”
