Investors to increase EM exposure over next five years: survey

[September 09, 2020]  NEW YORK (Reuters) - A majority of investors are planning to increase their emerging markets exposure over the next five years, even as concerns over the impact of the COVID-19 pandemic are limiting the short-term flow of investments to those economies, a survey published on Wednesday showed.

Over the next 12 months, close to 95% of investors are either keeping their same EM exposure level, reducing allocations, or increasing their exposure but more slowly than planned, according to a Vontobel Asset Management survey of 300 institutional investors and discretionary wealth managers.

Nearly nine in 10 investors surveyed said the effects of the coronavirus and its aftermath are a concern when deciding whether to increase their EM exposure.

"Not surprisingly, the impact of (COVID-19) tops the list of risks, but issues such as trade tension and economic nationalism follow closely," wrote Axel Schwarzer, head of Vontobel, in a statement alongside the survey.

"The perception of risk around EM investments is still a significant barrier to realize a strong increase in allocation."

Despite the near-term uncertainty, over a five-year period about two-thirds of surveyed investors expect to increase their EM equity allocations and almost six in 10 see higher fixed income exposure.

The MSCI emerging markets stock index <.MSCIEF> is up over 40% from this year's lows, but is still over 6% away from its 2020 highs and nearly 25% away from its 2007 record high.

Comparatively, the MSCI all-world index <.MIWD00000PUS> hit a record high last week.

Emerging economies as a group are expected to rebound only slowly from the coronavirus-induced lockdowns, even as China's recovery is forecast to be faster than initially thought.

China is seen growing 1.0% this year and accelerating to 8.2% in 2021, while Latin America's economy is expected to contract 9.4% in 2020 and grow just 3.7% next year, according to estimates from the International Monetary Fund.

(Reporting by Rodrigo Campos; Editing by Amy Caren Daniel)

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