Hedge funds show growing optimism for EM equities

Hedge funds’ bullish bets in emerging-market equity futures have risen to the highest since the gauge’s pandemic low three years ago, signaling budding optimism for the asset class.

Net long leveraged fund positions on futures linked to the MSCI Emerging Markets Index have been positive every week since the start of July and now total 62,544 contracts, the highest since March 2020, according to data compiled from commitments of traders reports from the Commodity Futures Trading Commission.

The rising long positions come even as China’s worsening economic slowdown continues to mar the outlook for the asset class. They also provide a contrast to Treasuries, which sold off in the lead-up to the Jackson Hole central-banker conference this past weekend. While it’s difficult to tell if such futures bets are outright longs or hedges for bearish wagers, the increase at the very least signals that funds want to limit their negativity about emerging markets.

The move may prove prescient, as Chinese stocks advanced Monday after authorities announced a slew of measures to woo back investors. Still, MSCI Inc.’s EM equity benchmark has risen 2.6% this year, on course for its third-straight yearly underperformance versus the MSCI all-country index that’s up 11%. 

The commitments of traders reports provide a breakdown of each Tuesday’s open interest for markets in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC.