Bears Cut $700 Million of Shorts as Emerging Stock Rally Revives

Coutts & Co.'s Higgins on Emerging Market Outlook

Short traders who once salivated in anticipation of the emerging-market equity rally’s demise have been left licking their wounds.

Bears extinguished $736 million of short positions in just two days in the three main emerging-market exchange-traded funds, according to IHS Markit Ltd. Most of those wagers were acquired only last month as the MSCI stocks gauge posted its first monthly loss this year amid concern a stronger U.S. dollar would undermine risk appetite.

Talk of an impending end to gains in emerging-market equities has simmered since April, as richer valuations and festering political crises spurred mini selloffs in individual markets. Yet the asset class as a whole repeatedly showed resilience, pushing investors to conclude this month that the rally won’t end unless there’s a shock from the Federal Reserve or an unlikely collapse in China’s economy.

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