BNY’s Geoff Yu highlights that Emerging Markets (EM) equity positioning is heavily skewed toward South Korea and Taiwan, with the rest of EM seeing historically low allocations. China’s weakness and poor EM data have already driven valuations to price in disinflation and weak growth. Yu argues that adding EM exposure ahead of any recovery offers a more attractive risk‑reward profile than current positioning implies.

EM positioning skewed to chip leaders

"Rotation away from EM chip leaders is becoming a more powerful allocation theme. Semiconductor-related stocks in South Korea fell heavily again overnight, while Taiwanese peers also struggled to benefit from solid earnings. There is now significant scope for convergence in absolute positioning terms."

"Our positioning data, which measure asset holdings relative to total global equity holdings, show that EM equity allocations are being heavily skewed by South Korea and Taiwan. Excluding these two markets, the EM equity share of global positioning is barely above 4% – the lowest level in three years and down almost a fifth over that period."

"Data in China and much of EM remain poor, but positioning and valuations already appear to reflect strong disinflation, weak growth and limited earnings momentum. Adding exposure ahead of recovery therefore offers a better risk-reward profile, whether the catalyst comes from cyclical improvement or stimulus."

"The bottom line is that market positioning implies there is no earnings growth in emerging markets outside chips. That looks too pessimistic if any recovery impetus emerges."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)