Investors are piling into emerging-market exchange-traded funds at the fastest pace in seven months as they dump technology companies in favor of cheaper stocks.
U.S.-based ETFs focused on emerging-market equities and bonds attracted a net $3.1 billion this month through yesterday, heading for their biggest monthly inflow since September, according to data compiled by Bloomberg. Funds investing in global technology companies lost $1.3 billion over the past five days, the most among 12 industries tracked by Bloomberg.
Investors are swapping last year’s winners for losers as their valuation shifts. The MSCI Emerging Markets Index rose to a four-month high today after its valuation relative to developed-nation peers declined to an eight-year low last month. The Dow Jones Internet Composite Index has slumped 13 percent from a 14-year high set in March on concern that earnings growth in companies such as Twitter Inc. and Facebook Inc. won’t justify their share prices.
“You started to see money coming back” to emerging markets, Richard Titherington, chief investment officer at JPMorgan Asset Management, which oversees $1.5 trillion, told Mark Barton on Bloomberg Television’s “Countdown” today. “People recognize emerging-market equities are cheap. You are seeing people rotating into sectors that have underperformed. People are looking for the next opportunity, not the opportunity from the last year.”
MSCI’s emerging-market stock gauge added 0.7 percent to 1010.75 as of 4:22 p.m. in New York, extending its advance over the past month to 4.6 percent. It has increased on 12 of the last 13 days.
Turkey’s Borsa Istanbul 100 Index of stock has rallied 17 percent over the past month, the most among the 93 global major benchmarks. Brazil’s Ibovespa Index has gained 15 percent since reaching a five-year low in March, 5 percent away from entering a bull market.
The Dow Jones Internet measure has lost 12 percent over the past month after gaining 54 percent last year. Twitter Inc., a San Francisco-based microblogging service that went public in November, has tumbled 43 percent from a peak in December. Facebook Inc., the world’s largest social network, has lost 19 percent from a record set in March.
After trailing their global peers by 29 percent in returns in 2013, MSCI’s gauge for emerging-market stocks traded at 10.6 times estimated earnings for the next 12 months, according to data compiled by Bloomberg. That compared with a valuation of 15.2 times for equities from advanced economies, near the biggest discount since 2006.
The Dow Jones Internet gauge was valued at 89 times of trailing earnings, after climbing 54 percent in 2013, compared with a valuation of 17 for the Standard & Poor’s 500 Index, according to data compiled by Bloomberg.
“You had a very crowded trade in tech and a very uncrowded trade in emerging markets,” said Dave Lutz, head of ETF trading and strategy at Baltimore-based Stifel Nicolaus & Co., said via phone.
Emerging-market assets are back in favor after the stock gauge lost 6.6 percent in January, the worst start to a year since 2009.
The rally came as China took steps to arrest an economic slowdown, Brazil and Turkey raised interest rates to curb inflation and India cut its current account deficits. Yields on 10-year U.S. Treasuries have declined to 2.68 percent, from 3.03 percent at the end of 2013, encouraging investors to buy higher-yielding developing-nation assets.
A Bloomberg index of 20 most traded developing-country currencies rose to the highest since December today as Brazil’s real extended its gain this year to 7.1 percent. The extra yields investors demanded to hold emerging-market dollar bonds over U.S. Treasuries fell this month to the lowest since May, according to data compiled by Bloomberg.
IShares MSCI Emerging Market ETF (EEM), the most-traded developing-country fund, attracted $1.6 billion from investors on April 7, the most since 2005, extending its inflows since March 26 to $4.1 billion, according to data compiled by Bloomberg. The $4.3 billion iShares JPMorgan Emerging Markets Bond ETF (EMB), which invests in debt, added a record $210 million on April 1.
“What you’re seeing is folks finally feeling comfortable dipping a toe back in the water in emerging market space,” said Jennifer Vail, head of fixed income research at U.S. Bancorp, said in a telephone interview from Minneapolis.
To contact the editors responsible for this story: Tal Barak Harif at email@example.com Nikolaj Gammeltoft