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<\/p>\nEMERGING market (EM) assets look set to cap a banner year, with investors expecting inflows into equities and bonds to gain momentum in the final quarter.\u00a0<\/p>\n
Sentiment has rarely been this buoyant, with an HSBC Holdings survey showing EM fund managers as the most bullish since the start of 2021 \u2013 when an everything rally was in full swing during the pandemic. Goldman Sachs Group strategists said EM markets are \u201cthriving, not just surviving\u201d, as economic growth this year surpassed expectations despite higher tariffs.\u00a0<\/p>\n
In a likely prelude to what may come, inflows into EM exchange-traded funds began to pick up towards the end of the third quarter. EM assets are facing a positive mix of factors that bode well for the months ahead: the Federal Reserve\u2019s rate-cut cycle is creating space for central banks in developing nations to ease policy, while a softer US dollar is encouraging a rotation away from US assets. China\u2019s stock rally could bolster sentiment towards the broader EM universe.\u00a0<\/p>\n
\u201cThe outlook for the remainder of the year is positive for equities on improving growth outlook and China stimulus, as well as for local debt as EM central banks continue to cut rates from still-high real and nominal levels,\u201d said Jon Harrison, managing director for EM macro strategy at GlobalData TS Lombard. \u201cThere should be solid inflows into EM assets to support currencies.\u201d\u00a0<\/p>\n
Crucial to the optimism are the Fed\u2019s anticipated interest-rate cuts. In Asia, economists expect central banks from South Korea to Thailand to lower rates in the fourth quarter, with the move from Bank of Thailand seen as early as this week. Goldman analysts led by Andrew Tilton wrote in an Oct 3 note that they expect lower policy rates across the region over the next year for Latin America.\u00a0<\/p>\n
Monetary easing, coinciding with a softer US dollar, can provide a powerful backdrop for across-the-board asset gains. Bond inflows can gather pace while equities are supported by improving macro fundamentals. A weaker US dollar can help ease the pressure on local currencies caused by lower interest rates.<\/p>\n
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An iShares ETF tracking EM dollar debt in September saw the biggest inflow since late 2023, while a product tracking the MSCI EM equity gauge saw inflows rebound to US$2.2 billion after a slowdown in August. A derivatives index capturing positioning in the Brazilian real, Mexican peso and the South African rand \u2013 typical high-yielding currencies in EM \u2013 is near its most bullish since early 2024.\u00a0<\/p>\n
\u201cWe\u2019re in the very early stages of the demand continuing to come into emerging market debt,\u201d said Shamaila Khan, head of UBS Asset Management\u2019s global EM and Asia Pacific fixed income team. \u201cOf course you can have short periods of volatility and there\u2019s global risk-off, but I do expect the resilience to continue.\u201d<\/p>\n
In HSBC\u2019s survey of 100 investors representing a total US$423 billion of EM assets, released in September, the share of respondents with a bullish view surged to 62 per cent from 44 per cent in June. Those with a bearish outlook halved to just 7 per cent. A reallocation away from the US and an acceleration in Chinese growth were cited as factors that could deliver positive surprises.\u00a0<\/p>\n
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