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While emerging market bulls continue to fuel the EM equities rally train - last week shovelling $265m into EM equity funds – a growing number of bears are piling out, raising the question: has the rally run out of steam? The latest bear to emerge, Kenneth Fisher, says sentiment in the market has become “too ebullient, too sanguine”.
The billionaire investor and chief executive of Fisher Investments has already put his money where his mouth is: his fund – which manages $44bn - sold over $1bn of its emerging market exchange traded fund stocks in the last quarter.
"Things that lead a bull market early on reach a period at some point, which we think is about now, where they start to run out of steam," Fisher said in an interview with Bloomberg.
Fisher Investments sold 20.6m shares in the iShares MSCI EM index fund and 2m of its shares in the Vanguard MSCI EM ETF, the two biggest emerging market funds in the US "“ with a combined hold of $86bn, according to Bloomberg data.
The MSCI Emerging Markets index is down 2.6 per cent at 1,133.39 since the start of the year. The index rallied in April, hitting a peak for this year of 1,206.49 on May 2, only to drop 6 per cent since then.
Emerging Europe has been the one bright spot this year, with the MSCI EM Europe Index outpacing others EM indices, gaining 3.4 per cent over this year. Asian and Latin American equities suffered losses; the MSCI Emerging Asia Index is down 0.6 per cent and the MSCI Latin American Index 7.6 per cent since the start of the year.
Fisher's view remains a contrarian one "“ developing markets are still a favourite among the majority of global fund managers, but concerns about global economic growth are beginning to slow risk appetite.
Data last week from EPFR "“ which tracks global fund flows on a weekly basis "“ showed that equity funds saw a seventh week of consecutive inflows but the net gain of $265m was significantly lower than the $1.2bn the previous week, and the $11.1bn for April. The slowdown was chalked up to commodity price volatility and weak macro data from the US.
As concerns increase about global growth, expect more EM bears to come out of the woods. As beyondbrics reported a few weeks ago, John-Paul Smith, strategist at Deutsche Bank, has views similar to Fisher’s and believes a new phase for EM equities is looming when they will be less attractive to investors. Smith told beyondbrics:
EM governments and companies became addicted to top-line growth between 2002 and 2007 and we're just not in that environment any more. We had a mini-echo of that as the Chinese fiscal stimulus came in but that echo is fading away.
Related reading: GEM bulls look out, he comes a bear, beyondbrics EPFR file, beyondbrics
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