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Quotes from BofA Merrill Lynch Global Research:
- The EM rally continued in April as investors dropped their overly pessimistic tone from the start of the year and moved to a more neutral stance. External debt, local debt and equities returned 1.4%, 1.1% and 1.6%, respectively, while spot EMFX has crept 0.2% higher so far this month.
- Although crisis fears have dissipated, most investors still believe rising US yields, likely during 2Q, could push EM assets lower, and expect EM volatility to increase again as the Fed exits QE despite it being a well-known policy shift.
- Our Global Fund Manager Survey shows that while the shift in sentiment has been sharp, the net underweight in EM equities has only gone back to levels seen during the depths of the financial crisis. With many not fully believing in the rally, this could mean it has further room to run.
