QUESTION OF THE WEEK

Which emerging market asset do you favor?

Every other week, we ask for your thoughts on a top question our portfolio managers and strategists are debating. We share the final poll results and insights.

    Emerging market (EM) assets have underperformed in recent weeks, capping off an underwhelming start to the year. Both local bonds and equities suffered from a challenging external setting with rising U.S. rates, higher inflation, ongoing Covid-19 concerns and weaker capital flow dynamics. 

    Given this backdrop, which EM asset do you favor over the long-term?

              Poll results: Which emerging market asset do you favor over the long-term?

              Source: Blackrock Investment Institute, with data from SurveyMonkey. Note: Data does not include results from BlackRock social media polls.

              Poll responses

              An overwhelming majority (76%) of respondents to our public poll chose “equities” as their favored EM asset over the longterm. Local currency bonds (13%), hard currency bonds (7%), followed by foreign exchange (4%) were the next most voted assets.  

              Responses from BlackRock portfolio managers showed a clear majority (75%) saw a tactical opportunity to go long following EM’s recent underperformance. Most favor equities as the asset class of choice to express the view. A quarter of investors said there were just too many challenges for EM assets right now.

              Differentiation is key

              Differentiation within EMs is becoming an important theme. For instance, commodity prices are a big factor for some countries – the recent surge in prices has coincided with upward earnings revisions for EM equities. 
              BlackRock’s Multi-Asset Strategies group saw equities presenting the best opportunity but not at the broad index level. Why? The ongoing regulatory crackdown on China's tech sector is likely to weigh on aggregate performance given its heavy weight in benchmark indexes. Our Active Equity team concurs. The post-Covid restart will be driven by rebounding domestic consumption – and broad EM indexes don't capture such dynamics very well. 
              In our Mexico office, some flagged reasons for relative optimism for real assets amid doubts over the speed of the economic restart in Latin America. But volatile policymaking is playing spoilsport. A member of the Global EM team notes the backdrop for EM is more benign than in 2013 when a back-up in U.S. yields – the taper tantrum – sparked a broad selloff.

              Delayed vaccine rollout

              Some EMs face near-term challenges including a virus resurgence, slow vaccine rollouts and rising inflation that may force the hand of their central banks. Yet the BlackRock Investment Institute (BII) expects their economic restart to likely be delayed – but not derailed. 

              BII is overall positive on broad EM and Asia ex-Japan equities in particular over the next six to 12 months, expecting these assets to be well positioned to benefit from a vaccine-led global restart. We also see the need to be selective in EM equities. To learn more, check out our recent Global weekly commentary. 

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