Tied as the fortunes of many emerging markets economies are to exporting commodities, any genuine recovery in global prices would be a significant lift to emerging markets equities, even a relative small recovery.
With United States equities struggling to deliver the sort of returns that investors had become accustomed to between 2009 and last year, and some serious question marks over other asset classes such as Japanese and European equities there could be a lot of investor money keenly sent to a new home if confidence in emerging markets returns.
According to data from ETF Securities, the price rises in oil and precious metals have been coming through for three weeks now, which is more than just a random fluctuation.
Overall emerging markets equities performance has been encouraging over recent weeks, but it is still a long way from being a significant rally.
Julius Baer is one asset management firm which is warming to emerging markets again though, and is ready to raise its weighting.
“At the end of July 2015 we downgraded global emerging markets to underweight and since then the MSCI Emerging Markets index fell by 13.7%, while the MSCI AC World fell by 9.5%,” said Heinz Rüttimann, strategy research analyst, emerging markets.
“We believe that the time has come to be tactically less pessimistic and upgrade emerging markets back to neutral for the following reasons; first, the sharp drop in earnings and the currency sell-offs versus the USD over the last 12 months are slowing,” he said. “Second, we expect the Fed to officially delay further rate hikes on March 15 which will support emerging market currencies. Third, China is taking more serious counter-measures. To be clear, global emerging markets are not out of the woods yet but after 5 years in a bear market we are testing the water.”
Wealth manager Heartwood Investment Management is also making a move. According to investment manager Jade Fu some emerging markets now look oversold.