STREET DOGS

The first quarter has ended and emerging markets are winning hands down. By the end of last week, developingmarket equities had achieved a 12.4% return in 2017, twice that of developed stocks and their best start to a year since 2012.

A gauge of local-currency emerging-nation bonds was up 7.4%, more than three times as much as the Bloomberg Barclays global fixed-income index.

Chris Brightman, chief investment officer at Research Affiliates, says emerging economies are beginning to enjoy a growth rebound and trading momentum has turned positive.

“The longer story is still intact, primarily because you are able to buy emerging-market stocks at bargain-basement prices,” says Brightman.

While not as cheap as 14 months ago, the MSCI Emerging Markets index trades at 12.3 times estimated earnings, compared with 16.6 for the firm’s global mature-market gauge.

Not all are convinced. Short sellers are piling into developingnation stocks once again. Bearish bets on the iShares MSCI Emerging Markets exchangetraded fund climbed to $3.2bn on March 28, the highest since April 2014.

“This bullish episode bears some resemblance to the sharp run-ups in 2007-08 and 200910,” says John-Paul Smith at Ecstrat, “both of which ended badly in absolute and relative terms.” The long-term outlook remains poor for emerging markets, says Smith.

Still, people keep buying as profit forecasts climb and confidence grows that developing nations can withstand higher US interest rates.

Deutsche Bank Asset Management lifted its view in part because it is positive on earnings growth in emerging markets for the first time in five years.