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Investing.com -- Emerging market (EM) assets have shown strong performance year-to-date, even though traditional EM fund inflow data might suggest otherwise, according to Bank of America.
The bank maintains its structurally bullish view on emerging markets that it first adopted on Inauguration Day, noting that the apparent disconnect between EM debt outperformance and fund flows is resolved when examining broader flow measurements.
Bank of America explains that EM debt has outperformed other asset classes this year and has even exceeded US Treasuries since the Covid pandemic. While conventional flow data might indicate a lack of investor interest, more comprehensive measurements reveal significant inflows to the sector.
The report highlights that the EM asset class continues to grow and now represents approximately a quarter of all tradable debt globally.
A key finding is the increasing importance of non-dedicated investors in EM debt markets. These investors, previously labeled as "tourists," are becoming more like "residents" according to Bank of America. Large inflows into global funds, which substantially exceed dedicated EM funds in size, are partially being allocated to emerging market assets.
The bank attributes this shift to improved fundamentals and credit ratings that have made much of the EM universe more accessible to global, non-dedicated investors. Bank of America considers these more stable crossover positions to be a stabilizing factor for the EM debt asset class.
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