Investors to increase EM exposure over next five years: survey

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