Across Wall Street, analysts and investors had cheered 2023 as the year of emerging markets, only to be burned by a relentless climb in US Treasury yields. Now, as the Federal Reserve looks set to end its most-aggressive monetary tightening campaign in a generation, they’re at it again.
Euphoria is already spreading through developing-nation assets, spurring a 7.9% rally in stocks and a 6.7% run-up in sovereign bonds last month. Investors are also pouring cash into the world’s largest exchange-traded fund tracking emerging debt — a signal that mom-and-pop retail traders and sophisticated risk-takers alike are once again taking on the risky asset class.
“I’m very fundamentally positive,” said Pramol Dhawan, Pacific Investment Management Co.’s head of emerging-market debt. “EM is an under-owned asset class, but when you look under the hood and you dig a little bit deeper, then this is an asset class you should want to own.”
Pimco was among a large cohort of asset managers on Wall Street a year ago that expected the asset class to outperform in 2023 as major central banks pivoted and China’s economy reopened.
But, at times, the bulls were blindsided as Beijing struggled to stoke growth and 10-year US yields briefly topped 5% thanks to resilient economic data and a still-hawkish Fed. Emerging assets have swung dramatically in 2023.