Vanishing Shorts Signal Some Emerging-Market Bears Giving Up

Updated on
  • Waning bearish bets on Aberdeen, Ashmore proxy for EM optimism
  • Markets rally on oil rebound, demand for higher yields

BlackRock Urges 'Great Migration' to EM Debt

The biggest rally in emerging markets in seven years has more to run if short sellers are any guide.

Bearish bets in U.K.-based money managers Ashmore Group Plc and Aberdeen Asset Management Plc have fallen to the lowest levels in more than two years as speculators closed out positions that seek to profit by selling borrowed shares and buying them back at a lower price. Trading in the two companies often reflect sentiment toward emerging markets because they invest in the asset class, according to IHS Markit Ltd., a research firm.

Stocks in the developing world have surged by almost a third from lows in January as a rebound in oil and signs of stability in China’s economy boosted outlooks for energy producers and countries such as South Africa and Brazil that count China as their biggest trading partner. Emerging markets have also benefited as stimulus measures by global central banks and accommodative policy in the U.S. fuel demand for higher-yielding assets.

“The bearish case for the asset class has waned in the last few months,” said Simon Colvin, a London-based research analyst at Markit. “The falling demand to short Ashmore and Aberdeen represents this new-found desire to gain exposure to emerging markets.”

Bearish bets on the two companies also suffered after the depreciation in the pound following the U.K.’s vote to leave the European Union increased the amount of their dollar-based assets converted into sterling, Colvin said. Ashmore and Aberdeen have rallied at least 15 percent since June, leaving short-sellers little room for that maneuver.

A U.S. exchange-traded fund focusing on emerging markets is also showing a similar trend of waning short positions. Bearish deals on the iShares MSCI Emerging Markets ETF are hovering near the lowest levels since April. The MSCI Emerging Markets Index advanced 0.8 percent on Tuesday, extending this year’s gain to 15 percent, the best performance since 2009.

Aberdeen’s assets under management increased 2.9 percent since March to 301.4 billion pounds ($401 billion) by the end of June as the benefits of a weak currency helped offset outflows. The company was among operators of seven U.K. property funds that froze redemptions after the Brexit vote to preserve cash and avoid a fire sale of commercial real-estate assets.

Gains in developing nations helped to boost Ashmore’s assets by 3 percent to $52.6 billion. Goldman Sachs Group Inc. recommended buying shares in the London-based money manager in July, saying its focus on emerging-market debt will spur stronger fund performance.