Investors back EMs for outperformance

Investors have made their largest allocations to emerging markets in a decade with 60% of a survey’s respondents saying they expect emerging markets to be the best-performing asset class in 2021. 

According to the latest Bank of America global fund manager survey, which questioned 217 panellists with US$576 billion ($762 billion) in assets under management in December, found investors were adding exposure to emerging markets and now had the largest allocation since November 2010.  

A net 55% of investors were now overweight global emerging markets, the highest in a decade. 

The proportion of investors who thought emerging markets would be the best-performing asset class in the next 12 months rose 10% month-on-month to 60% and BofA said this was the preferred asset class by a “large margin”. It was followed by the S&P 500, although the proportion in favour of the index had fallen from more than 20% last month to around 13%. 

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In order to fund the allocations to emerging markets, investors were rotating away from cash and US equities; more investors were underweight cash for the first time since May 2013 and cash levels were at 4%, down from 4.1% last month. BoA said this underweight was indicative of an early-stage recovery similar to the case after the Global Financial Crisis. 

While they were still overweight the US, a trend that had been place in March 2019, but the overweight fell by eight percentage points to 42%.  

According to American Century Investments, valuations in emerging markets equities were trading at a discount to historical average; they tended to trade at a 20% discount to the S&P 500 but were currently trading at a 30% discount.