EM & APAC Equity Strategy "1Q26 investor positioning: A shift away from ..."

Research evidence excerpt

EM & APAC Equity Strategy "1Q26 investor positioning: A shift away from ..."

nfrastructure and defence spending, and

policy support. As the conflict persists, however, supply chain disruptions and stagflation

risks are building, with expectations shifting from rate cuts to delayed easing or even

renewed hikes—outcomes that are still underpriced by markets, in our view. We reassess

our market and sector views and identify opportunities amid the current backdrop here.

Active: Positioning shifted from Taiwan, Korea and China to EMEA and LatAm

In Q126, EM funds reduced their positioning in Taiwan, Korea and China, shifting in ThechangeinEMfunds'activeweightsrepresentashifttoChina,TaiwanandKorea,fromBrazil,India,SouthAfricaandMexico.

favour of EMEA and LatAm, regions which are relatively more resilient amid the Middle

East conflict (Figure 4ChangeinequityholdingsrelativetoMSCIEM(activeweight)Q425). EM Asia positioning fell to five-year lows during the quarter.

Taiwan and Korea equities continue to outperform, but EM funds have turned

underweight from neutral, reflecting increasing market concentration and suggesting

investors have not fully chased the rally. In terms of sectors, EM funds are underweight

tech, as positions may be capped due to single-stock weight limits, and media & ent.

They are overweight financials, real estate and consumer. Energy and materials are at

benchmark (from underweight), sectors that largely benefit from high oil prices (Figure

22ActivelymanagedEMfunds'OW/UWpositionsbysectorvsEMbenchmark—curentvs5yrange).

Passive: Significant ETF inflows into EM

In addition to our universe of c.220 global and EM active funds with combined AUM of

c.US$1.4tn, we track EM-focused ETFs with combined AUM of cUS$500bn (including

overall EM and single-market ETFs).