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Investing.com -- Emerging markets are experiencing a "Goldilocks" moment as investors move capital away from U.S. assets amid dollar weakness, according to bond fund PIMCO.
"This is the most prominent capital rotation we have seen for the best part of two decades... and we still think we are in the early innings of this," said Pramol Dhawan, PIMCO’s head of EM portfolio management, as reported by Reuters.
The $2 trillion asset manager, which holds approximately $70 billion in emerging market assets, expressed optimism about the asset class. Dhawan cited investor overexposure to the U.S. and a weakened dollar as factors creating favorable conditions for emerging markets.
PIMCO joins other asset managers showing increased interest in emerging market assets. EM local currency debt has attracted record inflows in recent weeks.
The shift is attributed to import tariffs, growing concerns about U.S. debt levels, and reduced confidence in the U.S. government, according to Dhawan. Investors are favoring parts of Europe, Asia, and Latin America. The dollar index has fallen 10% year-to-date, while emerging market currencies have gained nearly 7%.
"Flows have been very strong for the first time in a number of years," Dhawan noted.
He added that flows to local currency assets exceeding those to hard currency ones indicates "investors’ willingness to embrace the dollar depreciation story and think more internationally around a search for yield."
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