BNY strategist Geoff Yu reports that emerging markets equity positioning has become extremely concentrated in South Korea and Taiwan, while other EM regions face historically low investor allocations. The positioning shift comes as China’s economic struggles and disappointing EM data have pushed valuations down to levels that already reflect disinflation and weak growth expectations.
The concentration in North Asian markets suggests investors are avoiding broader EM exposure amid persistent concerns about China’s recovery trajectory and overall emerging market fundamentals. However, the depressed valuations across much of the EM universe may present opportunities for contrarian investors if economic conditions stabilize or improve.
This positioning dynamic is critical for traders assessing risk appetite and capital flows in emerging markets. The low allocations to non-Taiwan and non-Korea EM assets indicate significant room for reallocation should sentiment shift, potentially driving sharp rallies in underweight regions.
FXnCO Insight
The extreme underweight positioning in broader EM outside Korea and Taiwan creates asymmetric upside potential for fast-moving traders if Chinese stimulus or positive economic data triggers a sentiment reversal.
Source: FXStreet