Should contrarians turn bullish on emerging markets?

ON EMs

Global emerging market equities have suffered their worst first half of a year since the Asian financial crisis in 1998. The MSCI Emerging Market (total return) index dropped 10%, while the MSCI World index rose 9% and the S&P 500 was up 14%.

After strong inflows into global emerging market (GEM) equities early in the year, there have been outflows of around USD28bn since mid February. Consequently total inflows this year into GEM funds are a mere USD4bn versus over USD51bn in 2012, according to UBS. The outflows have been driven by GDP downgrades across most markets. In China the self-imposed cash crunch led to the interbank rate spiking and renewed concerns about a hard landing. Meanwhile political risk remains high with protests continuing in Turkey, Brazil and most recently Egypt. Since May, the debate about when the F...