July 28, 2021
The Delta variant is surging in and around the US but it originally took hold in many emerging market countries. EM investors have countered the new COVID strain by completely pulling back in equities and piling into bonds. EM bond markets have had 11 straight months of net inflows which is the best streak since early 2018. Bond inflows hit a net $92.2 billion over the last six months as $2.2 billion has poured out of equities in EM (excluding China). This is likely to stay the course as stocks in emerging markets tend to turn around when optimism is better than in the developed world. The best places in EM appear to be at the long end of the yield curve in Russia, Colombia, and Turkey, says the head of multi-asset solutions at BNP Paribas. This is in lockstep with funds as MSCI Inc.'s gauge of emerging markets stocks is off almost 9% from the February peak.
FINSUM + Magnifi: EM investors should double down their bond market spending on EMs as long as the delta variant continues to spread.
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