DWS’ global chief investment officer has downgraded his outlook on emerging market stocks to neutral, citing China’s slow recovery following its reopening as the main factor.
In the German asset manager’s July/August update, Bjoern Jesch cited the fact that the Caixin purchasing manager index declined to 52.5 in June, its lowest level in six months, as supporting his overall thesis.
“We have downgraded the rating to ‘neutral’,” Jesch said, referring to emerging market stocks. “The main reason is the slow recovery of the Chinese economy. Moreover, there have been more negative earnings revisions than in other regions.”
The downgrade comes even as money from investors pours into emerging markets, buoyed by the belief that a weakening dollar and the fact that inflation is less problematic than in developed markets will help emerging markets over the near term.
Reuters reported that inflows into emerging market equity funds are outpacing those into developed market funds for the first time in three years, citing Refinitiv Lipper data. According to Reuters’ report, inflows into emerging market equity funds hit $30.55bn in the first half compared with outflows of $88.65bn from developed market funds.
Still, there has been increasing consternation about the pace of China’s economic recovery during the second quarter. Last month, Pictet Asset Management said that it had “waited long enough” on China equities and subsequently downgraded its outlook.
Meanwhile, Jesch also upgraded his outlook on US investment grade corporate bonds to outperform.
There has been no shortage of asset managers lately tipping fixed income as last year’s sell-off has created attractive entry points, while the preference for US corporate debt is not novel either given the fact that all-in yields on an unhedged basis are generally higher than in Europe, where also the European Central Bank has further to go in its hiking cycle.
