Posted inDACHEmerging MarketsNORDICSFRENELUXEquitiesAsia

Demand for emerging market equities evaporates

One in five fund selectors plan to increase their allocation to emerging market equities in the next 12 months, compared to 18% who want to cut exposure. Compared to the beginning of the year, the French and the Swiss have especially changed their tune from bullish to bearish. Almost half of fund buyers in both countries said they wanted to increase allocation in March. Now the two countries are Europe’s biggest bears on the asset class.

So something must have put them off. The trigger might be in Asia, where stocks boomed in the beginning of the year, adding more than 20% until April. Then markets started to fall, notably in China, prompting the French and Swiss, and many of their fellow fund buyers, to change tack.   

Do small caps make the difference?

Finland is now one of few countries staunchly buying EM equities. Since the beginning of the year, close to half of local fund buyers have been telling us they plan to increase allocation to EM equities. Their exceptional enthusiasm for the asset class might be explained by their preference for small caps, which have less exposure to macroeconomic and political developments and are, contrary to their developed market peers, slightly less volatile than large caps as well.

The only other country where fund buyers prefer to get exposure to emerging markets through small caps in Norway. Here, sentiment towards both Asian and global emerging market equities is also considerably more positive than elsewhere, with buyers outnumbering sellers by a large margin. 

Part of the Bonhill Group.