Emerging Markets: Idiosyncratic bid persists in equities – BNY

Geoff Yu at BNY highlights that EM EMEA equities have outperformed, with strong buying in Poland, South Africa and Turkey since before the July Fed meeting, despite weaker regional currencies and bonds. He stresses that U.S. equity diversification is not an EM beta trade and that EM equity flows remain driven by country‑specific and sectoral factors rather than a uniform U.S. debasement theme.

Regional flows driven by specifics

"EM EMEA is the regional equity outperformer. Over the past week – covering the Treasury buyback announcement – our flow data indicate Poland, South Africa and Turkey were in the top five of best-bought equity markets. Our data show that this isn’t a one-week story, as the region has been strongly bought since right before the July Fed meeting."

"EM EMEA markets are diverse, which means it’s important not to read a common narrative into the data. If low USD real rates or general weakness in global real rates is a driver, then Poland, South Africa and Turkey do offer some duration lift, as well as dividend yields."

"U.S. equity diversification isn’t an EM play. As stated above, cross-border holdings of U.S. equities have improved. There is only room for additional flow on the margins and in a highly selective manner."

"We don’t see a uniform “U.S.” theme in EM equity flows. If the market were to push for “debasement,” EM Americas should be the prime beneficiary due to much heavier commodity exposure. This was the case in Q1 in markets such as Brazil and Peru, with the latter benefiting significantly from the surge in silver prices."

"We continue to target better performance in high-carry EM duration as a hedge against dollar risk, whereas EM equities will need to rely on idiosyncratic factors and a broader shift in asset allocation preferences."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)