Global asset management giants are turning their attention to emerging markets. According to a recent analysis by Citigroup, top asset management firms, which currently manage total assets exceeding $20 trillion globally, are becoming increasingly optimistic about emerging market equities, currencies, local currency bonds, and credit assets. This trend could inject new momentum into the recent record-breaking rally in emerging markets. Notably, the MSCI Emerging Markets Stock Index is currently trading near historic highs. The index rose 0.2% on Thursday, bringing its cumulative gain this year to nearly 15%.
After studying the market outlooks released by these top fund managers, Citigroup found that they have generally increased their long positions in Asia, Latin America, as well as Europe, the Middle East, and Africa. This overall bullish sentiment is mainly driven by rising uncertainty over US policies and the continued widening of fiscal deficits, which are putting pressure on the US dollar. Citigroup analysts told clients that emerging markets are receiving more attention as asset managers actively seek diversification opportunities in non-US assets. The improvement in emerging markets’ fundamentals and the relative weakening of the US dollar happen to provide such opportunities.
In terms of specific market performance, most emerging market currencies weakened on Thursday, although the US dollar exchange rate remained relatively stable, with notable regional divergence. Asian currencies performed relatively firmly, with the Taiwanese dollar rising 0.3% driven by strong foreign capital inflows, and the Chinese yuan and Indonesian rupiah also moving higher. However, against the backdrop of falling commodity prices, sentiment towards emerging market foreign exchange overall tended to be cautious, with most Latin American currencies declining against the US dollar.
The Colombian peso became the worst-performing emerging market currency of the day, falling nearly 4%, its largest single-day drop since March 2020. Other Latin American currencies also generally came under pressure. The Chilean peso fell nearly 1%, the Argentine peso dropped 0.6%, giving up the four-month high touched earlier this week, and the Brazilian real declined about 0.3%. In Brazil, the presidential campaign momentum of Flávio Bolsonaro, son of former President Jair Bolsonaro, is strengthening. The rise in his polling support is challenging the previous market view that his candidacy was merely a strategy to seek a pardon for his father.
In the stock market, Latin American equities underperformed overall, with a regional stock index falling 0.7%, diverging from the slight gain in the MSCI Emerging Markets Index on the same day. Despite this, Latin American stocks remain one of the best-performing markets globally this year, rising nearly 20% year-to-date, outperforming the broader emerging markets’ gain of about 15%. However, the Argentine stock market is a notable exception. The enthusiasm surrounding President Javier Milei’s election victory has gradually faded, and concerns over weak corporate earnings have grown, causing Argentina’s benchmark Merval index to fall about 8% this year, with its trend flattening out.
