Why EM assets may gain more grounds?

If you are a contrarian investors, then emerging market assets may just suit your appetite. This year so far, emerging market assets have returned quite well, compared to developed market peers. For example, German benchmark stock index, despite recent rally, down more than 6% YTD, while Indian benchmark index nifty is just down about 2.5%.

• According to latest survey by Bank of America Merrill Lynch (BoFAML), done on global fund managers’ short emerging markets, took over US Dollar and oil as the most crowded trade currently.

In the February survey Short emerging markets stood at number three position as most crowded trade. Now almost 26% of the fund managers believe EM shorts to be most crowded followed by 21% voting long USD as most crowded and 18% voting short oil.

Back in February, almost 30% managers were considering long USD as most crowded trade. Whole second half of last year fund managers were overwhelmingly voting USD longs as most crowded.

This year, US Dollar index has fallen by close to 3.5%.

Given the yield emerging markets are still in good position to receive inflows and provide better returns over a period of 12-18 months.