Institutions rate emerging market equities top asset class

Survey2New research has shown that institutional investors see emerging market equities as the most attractive asset, in terms of risk and return over the next six to twelve months.

Research from ING Investment Management (ING IM) reveals emerging market equities are the favourite asset class out of 23 choices.

Of the 111 international institutional investors surveyed in June, 37% of respondents chose emerging market equities as their preferred asset class. Global equities and US equities followed in joint second place with 33%, and European equities came third with 32%.

Despite the recent underperformance of the asset class, the survey also found that 16.7% of the investors interviewed believed the sector's chances of recovery over the next three to six months was "highly likely". A 42.3% majority said it was "reasonably likely" and only 15.4% said it was "unlikely".

ING IM, owned by ING Group, has recently upgraded its weighting on emerging market equities on the basis of attractive valuations, strong flow momentum and a reduction in cyclical risks.

Maarten-Jan Bakkum, senior emerging market strategist at ING IM, says: "The global emerging market growth picture remains mixed. On the one hand, there is some improvement in China but on the other hand, there is continuous weakness or even deterioration in a group of other important emerging economies such as South Africa, Turkey and Brazil.

"Overall, we see improving technical factors, while EM [emerging market] fundamentals remain poor. With investor expectations more realistic than earlier in the year, we feel that a small overweight position is justified now."

The firm, which has approximately €322 billion assets under management, currently cites Japan as its favoured equity market, as a result of good earnings and an attractive trade-off between earnings growth and valuations.

iShares, a family of exchange traded funds managed by BlackRock, has also come forward to express its optimistic outlook on emerging market equities.

Stephen Cohen, chief investment strategist at iShares EMEA, says: "Emerging market equities' out performance in the past five months has left broad emerging markets and China testing recent year highs.

"Since mid-March, emerging markets have outperformed developed markets, with the MSCI EM up 15%, China H Shares 24% and China A Shares 13%. Despite these gains, we think there could be more to go in the emerging markets trade."

Cohen says investors have become significantly more positive: "This has been driven by a broad improvement in sentiment and fundamentals, led by China, and positive speculative impact from elections such as India, Indonesia and Brazil, a shift from the tightening stance across emerging markets earlier this year, and markets pricing out - for now – developed market policy normalisation."

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