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Laxman Pai, Opalesque Asia:

The summer 2018 Emerging Markets (EM) crisis which targeted EM markets displaying weak financial equilibrium caught EM hedge fund managers off guards. It led EM L/S Equity strategies to accelerate their de-risking, which proved insufficient to weather the year-end storm, said Lyxor in its Weekly Brief. They recovered only part of their lost ground afterward.

EM Global Macro strategies aggressively switched out of bonds favoring EM currencies instead. Since December, they rapidly returned to EM credit, especially in non-Asian markets. Anecdotal evidence suggests that they started to rebuild equity positions. Additionally, EM Relative Value and Fixed Income strategies also noticeably rebuilt their credit allocation.

In other words, EM L/S Equity strategies remain cautious regarding the sustainability of the rally in EM assets. Managers report that good news tend to be priced in with EM valuations back in their medium range. They are not convinced that global growth bottomed for good. They are also concerned that political uncertainties will continue to make stock picking opportunities vulnerable.

In contrast, EM top-down and credit strategies largely turned bullish on EM markets. Managers report that positive economic surprises in China are only at their beginning. They expect that flows toward EM assets will remain fueled by institutionals and by a wider inclusion of Chinese stocks in MSCI EM indices. They also see the dovish Fed stance ......................

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