Developed markets outperformed emerging markets in March, shows data

Developed markets (DMs) outperformed emerging markets (EMs) in March amid the rise in US bond yields and the dollar. Germany, the US, and France were the better-performing major global markets last month. On the other hand, India, China and the Philippines were among the laggards.
 
Analysts say fears of weakness in emerging market currencies and the US “reflation trade” are prompting investors to pare their exposure towards EMs. This year until mid-February, global investors were seen preferring developing markets amid weakness in the greenback.
 
However, the tailwind has changed to headwind as the dollar gained momentum driven by aggressive relief packages announced by the US government.

 
“EM assets have suffered heavy losses in recent weeks as investors have been struggling with three key risk factors that have resurfaced of late,” says a note by Alpine Macro.
 
The risks, according to the investment research firm, include rising US yields, fears of aggressive policy tightening in China and geopolitical tensions between the US and China. The 10-year US Treasury yield has moved from 1.2 per cent to 1.7 per cent in just six weeks.
 
Experts believe the yield could rise further. “Despite an already big move, and some recent consolidation, we still expect bond yields to be higher than current in six months’ time,” says a note by JP Morgan.