With the eyes on the US presidential election and the second wave of Covid-19, investors around the world can be forgiven if they have missed two important warnings from emerging markets.
However, with the election (almost) out of the way, it may be time to go through the rest of the news flow and think properly about the two events that may have been overlooked: the postponing of the world’s biggest stock listing (China’s Ant Group), and the firing of the governor of the Turkish central bank.
By Nuno Fernandes
This article was first published by Opalesque.com.
The recent steep slides on global stock markets have been a long time in the making. As early as two years ago, it was becoming obvious that in addition to the contraction of global demand, as well as the general increase in the relative competitiveness of other Asian countries, China’s rapid rise was coming to a screeching halt and leaving excessive debt in its wake.
An investor survey showed such “unambiguous pessimism,” that either risk assets are ripe for a rally or the markets are positioning for a recession and/or an imminent debt default, according to Bank of America Merrill Lynch research, which carried out the survey.
Capital flows showed a “bond massacre” is underway, with the largest weekly outflow from bond funds in 18 months, according to Bank of America Merrill Lynch.
Equities saw their largest inflows in 11 weeks in the week that ended on June 3, with the contrarian “buy” signal triggered in early January still in place, data from Bank of America Merrill Lynch showed.
Capital flowed back into stocks last week, with European equities the favourite destination in the developed world, after posting their best earnings season in years.
Chinese stocks saw their biggest inflows in 14 weeks last week, when emerging market equity funds saw their first inflows in five weeks, the latest data show.
Money has been returning to emerging markets at a brisk pace lately, the latest data on capital flows show.
US earnings season is in full swing, with many investors watching reports closely to see how much damage the strong dollar has done in the first quarter.
Capital has been flowing out of US stocks, with many market participants worried about wild price swings in the most volatile earnings season in years.