Emerging Markets Most Crowded Trade Ever: 5 Hottest ETFs

According to the February survey of Bank of America Merrill Lynch, emerging markets have been labeled as the “most crowded trade” on Wall Street for the first time in history. This marks a sharp reversal from last month when fund managers said: "short emerging markets" was the third most-crowded trade.

Behind The “Most Crowded Trade”

After being hit sharply last year, the enthusiasm in the emerging markets has been renewed by the Fed’s cautious stance that it is not in a hurry to raise interest rates this year. This has pushed the U.S. dollar down, pulling in more capital into the emerging markets. Per TrimTabs Investment Research, emerging markets equity ETFs had inflows of $3.5 billion, or 1.9% of assets, during the five trading days ended Feb 5, the biggest five-day inflow since April 2014.  

Hopes over the trade deal between the United States and China as well as a stimulus in China’s economy have also raised the appeal for these stocks though global slowdown concerns remain an overhang. China’s central bank cut its reserve requirement ratio (RRR) for the fifth time early this year and also offered financial institutions $83 billion in liquidity as part of a wider economic stimulus later on. Additionally, the bank signaled more stimulus measures in the near term as the tariff war with the United States is taking a toll on the world’s second-largest economy.

Further, the positive developments in Brazil and Argentina led to a spike in broad emerging market trades. This is especially true as Brazilian stocks have been flying higher on hopes of economic reforms after President Jair Bolsonaro took office on Jan 1 while the stock market in Argentina showed a strong rebound as the central bank’s tighter monetary policy, introduced late last year in an effort to curtail the peso's slide and curb inflation, has started to pay off.

The rebound in oil price also supported the emerging markets. If these weren’t enough, the beaten down prices have made stocks targeting emerging nations compelling bets.

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