The multi-asset team at Invesco Perpetual, for example, entered but then swiftly exited an emerging markets position saying that the rapid deterioration in earnings meant it was ‘too early’ to say that valuations had reached a trough. However, there are tentative signs of interest returning to emerging markets.
There are still many reasons to be bearish on emerging markets: commodity prices continue to fall and now look set to remain low. Even if Chinese growth does return with any vigour, it is unlikely to be accompanied by high demand for commodities. Brazil’s economy lurches from crisis to crisis, Russia is still suffering, with India a rare bright spot.
Yet, in spite of this backdrop, investors directed $13.9 billion into emerging markets in October. This marked the first monthly inflows since June. The majority of the inflows (around $9bn) went to Asia, according to figures from trade association, the Institute of International Finance. This was split relatively evenly between fixed income and equity.
Closer to home, there is increasingly interest in emerging market strategies. For example, in its recent results presentation, Standard Life Investments reported growing interest in its Enhanced Diversification Emerging Market and Emerging Market Bond funds. The iShares MSCI Emerging Markets and iShares Core MSCI Emerging Markets ETFS were both among the top 10 ETFs for fund flows in the week to 26 October.
This is a relatively recent phenomenon – today’s Morningstar Direct Asset Flows statistics show that emerging market bond funds were still haemorraging money as recently as September. But the Federal Reserve’s delay of US interest rate rises appears to have created a subtle shift in sentiment towards the asset class.
Yesterday, Kames chief investment officer, Stephen Jones, said the group had reversed its long-standing underweight to emerging markets, believing that valuations had ‘got to a point where they now look attractive’. Although a number of other asset allocators – notably Fidelity and JP Morgan – believe it is still too soon to re-enter emerging markets, there is a small shift in sentiment.
