Multi-asset fund managers have poured cold water on claims that emerging market economies are on the verge of springing back to life.
The managers were sceptical of recent analysis by CrossBorder Capital that suggested cross-border capital flow data indicated the developing economies were about to start benefiting from rising liquidity, which could lead to a market rebound.
John Ventre, head of multi-manager at Old Mutual Global Investors, said a big part of the recent improvement was likely to be down to China, which had begun to reverse its credit squeeze of recent years.
Mr Ventre said he already had an overweight position towards China in his portfolios, but he was neutral towards the broader emerging market sector, and that there wasn’t enough evidence of a broad recovery yet.
He said: “I would like to see more signs of flows coming back into emerging markets. A lot of the improvement highlighted in this report has probably come from China.
“It is likely the improvement in liquidity in China will feed through to other Asian countries and possibly to emerging markets.
“If we start to see a continuation of the trend then it will be worth broadening our emerging market overweight to countries beyond China. There is a decent chance of a recovery but I will wait for more evidence.”
In response to the report, which only highlighted a recent upswing, Gary Potter, co-head of multi-manager at F&C Asset Management, said: “There have been a lot of false dawns in emerging markets.”
Mr Potter, who has an overweight position in Asia but an underweight position in the rest of the emerging markets, said: “At some point we will allocate more to emerging markets.”
But he added he would not do so yet because “it is a little bit too early”.
“If you believe in mean reversion as I do, then there is definitely a case for reallocating to emerging markets,” he said.
“A gradual accumulation policy from this level has been profitable in emerging markets historically.”
However, Premier Asset Management’s multi-asset team has already started to dip its toes back into the region, looking to get in early on a potential recovery.
Mark Rimmer, multi-asset product director at Premier Asset Management, said: “The valuations in many emerging markets have become more attractive, with a greater choice of cheap stocks to pick from.
“As a result, we have recently been increasing exposure to emerging markets, switching out of markets such as Japan that have performed strongly.”
CrossBorder Capital, which analyses money flows into global financial markets, claimed earlier this month to have identified a marked upswing in cross-border capital flows into emerging markets.
Money has been flowing out of emerging markets for the past three years, in part inspired by the economic recovery in the developed world, particularly the US, and also by a credit squeeze imposed by China to control its property market and shadow banking system.
CrossBorder Capital said “it appears from our data that cross-border capital flows are again headed to emerging markets” and the “path of progressively rising emerging market liquidity is evident”.
