Macroscope | Why emerging market bulls need to rein in their optimism
- Nicholas Spiro says investors are bearish about the US but increasingly bullish on emerging markets. But, while the worst seems to be over, emerging market stocks may only seem safer because Wall Street had a dreadful December
Yet, while the mood is one of “extreme bearishness”, according to a December Bank of America Merrill Lynch fund manager survey, there is increasing optimism about developing economies, the asset class that bore the brunt of the price declines for most of 2018. The survey notes that emerging markets are now the most popular region among equity investors, who have not been more bullish about emerging market stocks over the next 12 months since July 2009.
Optimists can justifiably point to a number of factors that suggest emerging markets have turned the corner.
The most obvious one is the outperformance of emerging market stocks in the final two months of last year. While the MSCI All-Country World Index, a leading gauge of global shares, fell 7 per cent – more than half the index’s decline for the entire year – the MSCI Emerging Markets Index rose more than 1 per cent. And emerging market stocks were less volatile than US equities, which had their worst December since 1931, according to Bloomberg.