Emerging Market Assets ‘Crowded Trade,’ Deutsche Bank Says

Emerging-market assets may reach “excessive levels” and be at risk of an extended period of underperformance if developing countries fail to reduce reliance on exports and commodities, according to Deutsche Bank AG.

Emerging-market stocks no longer appear cheap after a decade of outperformance and developing economies may slow over the next decade without shifting dependence from exports to domestic demand, Deutsche Bank AG strategists John-Paul Smith and Neil Wedlake wrote in an e-mailed research note today.

“We are concerned that the broad acceptance of the top down bull case for emerging markets might force valuations to excessive levels over the coming months,” Smith and Wedlake wrote. Global emerging-market assets are becoming a “crowded trade” as investors, including pension funds, increasingly rely on them to compensate for poor returns elsewhere, they wrote.

The MSCI Emerging Markets Index has risen an average of more than 12 percent per year since the beginning of 2001, compared with a 0.1 percent annual retreat in the MSCI World Index in the same period, according to data compiled by Bloomberg.

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