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Has Investor Sentiment Turned in Favor of Emerging Markets?

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BlackRock is overweight on emerging markets

On August 22, 2016, BlackRock (BLK) upgraded its rating on emerging market (or EM) equities to overweight. The investment management company had been concerned about the slowdown in China, the commodity price slide, and the United States nearing a recession in the past.

msci em

With these fears abating, the company is now more confident about emerging markets’ fundamentals being instrumental in driving growth in these economies. With China (FXI) showing signs of recovery, commodity prices recovering, and positive indicators coming from the United States (SPY) (IWM), investor sentiment for emerging markets has turned positive, even bullish.

Funds are increasingly flowing into emerging market equities, as is evident in the surge of the MSCI Emerging Market Index (EEM) so far this year. Forward valuations are clearly rising with it, indicating positive investor sentiment toward emerging markets.

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Fundamentals and sentiment are favoring emerging markets

According to Gerardo Rodriguez, portfolio manager of the BlackRock Total Emerging Markets Fund, “The most important part and what drives our [view on] the EM performance over the long term is the fundamentals, but you need to be aware of the sentiment around EM. Now both of them have aligned.”

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