Growth bets spark interest in emerging market stocks, driving increased investments

 Investors in emerging markets are redirecting their focus towards stocks as they prepare for a post-monetary tightening landscape. In recent times, equity benchmarks have outperformed local-currency bonds since the start of July, signaling early signs of a rotation underway. This shift is accompanied by a surge in inflows into emerging-market equities, with Bank of America Corp. reporting a substantial increase of $4.1 billion in the week leading up to August 2, adding to the inflows witnessed in the previous three weeks.

    

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The growing interest in stocks indicates that local-currency bonds, which had been favored in emerging markets throughout the year, are now facing tougher competition from equities. This change in investment preference is supported by a positive macroeconomic backdrop, where emerging economies are projected to grow nearly three percentage points faster than advanced nations over the next three years, led by China and India, with China experiencing slightly slower growth.

 

Another contributing factor to the shift towards stocks is the rise in earnings forecasts for emerging market companies. Analysts have revised their earnings projections at the fastest rate in 18 months, according to data compiled by Bloomberg, adding further momentum to the stock market rally.

 

Taken together, these developments suggest a potential shift in investment from bonds to stocks in emerging markets. Investors seem to be attracted to the better growth prospects and increased earnings forecasts in the equity market as the global economy adapts to the changing monetary environment.

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