PFM Trading: Hunt For Yield Sends EM Stocks To One-Year Highs

PFM Trading: The global hunt for yield is back in full swing as global central banks ramp up stimulus.
PFM Trading: Emerging market equities have surged to one-year highs driven by record capital inflows from global investors searching for return as bond yields in developed markets remain in negative territory.
Analysts at US banking giant, Bank of America Merrill Lynch said that the trend had led to a record 5-week inflow of capital into emerging market debt funds and the longest period of inflows into equity fund in the last two years.
Renewed central bank stimulus in Japan and the United Kingdom as well as a decreased likelihood of increases in US interest rates has helped push bond yields in developed markets below zero creating problems for investors who depend on the yield from safe assets.
"Pension funds and insurers must invest in assets that have the highest credit rating but the assets that traditionally hold these ratings aren't generating the kind of returns they need in order to fulfill their obligations to clients and customers. This means they have little choice but to invest in the bonds of emerging nations in places like Asia and Latin America," said Brian Solus, Chief Economist at PFM Trading.
"They're also buying up equities in highly-rated companies and that's good for those of us already invested in these markets," he explained.
Though PFM Trading said it could not say for certain how long it believed the trend would continue, the firm notes that global central banks are likely only at the early stages of their efforts to boost their economies and that, consequently, investors could reasonably expect to see more liquidity flowing into risk assets.