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.
BNY's Geoff Yu reveals that emerging market equities in EMEA (Europe, Middle East, Africa) have been outperforming, with notable purchases in Poland, South Africa, and Turkey since before the July Fed meeting. These markets have seen strong buying despite weaker currencies and bonds. The outperformance isn't a result of a uniform U.S. debasement theme, but rather driven by country-specific and sectoral factors.
Our data shows this trend isn't limited to a single week, as the region has been strongly bought since prior to the Fed meeting. EM EMEA markets' diversity means we shouldn't read a common narrative into the data, as low USD real rates or general global weakness could provide some duration lift and dividend yields for Poland, South Africa, and Turkey.
U.S. equity diversification isn't an EM play, and while cross-border holdings of U.S. equities have improved, there's limited space for additional flow on the margins. We don't see a uniform "U.S." theme in EM equity flows, as EM Americas would be the prime beneficiary of a "debasement" push due to its heavy commodity exposure. We continue to target better performance in high-carry EM duration as a hedge against dollar risk, with EM equities relying on idiosyncratic factors and a broader shift in asset allocation preferences.
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