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Investor confidence in emerging markets bounces back

Lucinda Beeman
Written By:
Lucinda Beeman

Investors appear to be regaining confidence in emerging market shares as they turn away from the US, research from Lloyds Bank suggests.

According to the monthly Lloyd’s Private Bank Investor Index, sentiment towards emerging market equities rose by four percentage points in May, the biggest increase for the month of all asset classes covered.

This marks a turnaround for the asset class following a challenging couple of quarters for emerging markets since investors began pricing in the likely impact of the US Federal Reserve’s quantitative easing taper policy.

Ashish Misra, head of investment policy at Lloyd’s Bank Private Banking, sees several factors at play which may be reversing this trend.

Firstly, emerging markets appear to have weathered the volatility arising from the tapering of the Federal Reserve’s asset purchase programme better than investors expected.

Secondly, the counter-intuitive and persistent weakness of the US dollar has allayed fears of a mass unwind of dollar-funded trade in emerging markets.

And finally, the very volatility that the initial days of taper brought to emerging markets has opened an attractive valuation gap between emerging and developed markets.

Meanwhile, sentiment towards US shares dipped this month.

Weather issues and concerns that valuations may have gone too far are thought to have contributed to the four point fall, from 16 per cent to 12 per cent, in investor sentiment.

Sentiment towards UK property still tops the charts at 60 per cent, though its rise has slowed in recent months.

UK shares, Japanese shares and UK government bonds all saw increases this month, while eurozone shares fell by two points.