Emerging-market stocks and currencies are luring global investors for all the wrong reasons right now.
A quarterly Bloomberg Global Poll showed there was a two-fold surge in the number of respondents who identified developing-nation equities and currencies as the assets they’d most like to bet against. For currencies, the percentage jumped to 12 percent from 6 percent in November while for stocks, it rose to 7 percent from 3 percent.
Investor confidence in emerging markets is faltering as China posts the slowest economic expansion in 24 years, Russia remains embroiled in the Ukraine conflict and Brazil slips into stagflation. Add to this a stronger dollar and the prospect for higher interest rates in the U.S. -- both of which drive up debt-servicing costs for developing nations -- and many see an environment conducive to further losses. Emerging-market stocks have been sinking since September, pushing the benchmark gauge down 11 percent, while currencies began slumping in July.
“Indiscriminate risk taking in emerging markets in recent years has led to some disappointments,” Andreas Domke, a poll participant and portfolio manager at Allianz Global Investors Europe GmbH in Frankfurt, said by phone on Jan. 21. “Investors are asking whether there are adequate rewards for the risks. I can imagine some people got burned.”
Slowing Growth
The declines in the second half of last year extend a slump that began in early 2013. The MSCI Emerging Markets Index fell about 5 percent in each of the past two years, the first consecutive annual declines since 2002. A Bloomberg index tracking 20 major developing-country currencies retreated 20 percent against the dollar over that time to a 13-year low, led by plunges in the ruble, rand and lira.
Only overseas bonds issued by developing nations have provided a positive return, gaining 9 percent over the past 12 months, according to data compiled by Bloomberg. Still, investors have piled into bets against the $4.1 billion iShares J.P. Morgan USD Emerging Markets Bond ETF, sending short interest to 21 percent of shares outstanding, from just 7.8 percent in November, according to data compiled by Bloomberg and Markit Group Ltd.
Investor interest in betting against emerging-market debt was stable in the poll. Six percent of the investors, traders and analysts who took part in the survey said it was the asset they’d most like to sell short, matching the November figure.
The survey of 481 Bloomberg subscribers was conducted Jan. 14-15 by Selzer & Co., a Des Moines, Iowa-based firm. It has a margin of error of plus or minus 4.5 percentage points.
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