Emerging-Market Investor Inflows Are a 2026 Story, BofA Says

Bank of America (BofA) projects a significant "2026 story" for emerging market investor inflows, anticipating a shift from US assets driven by increasing evidence of EM economic resilience. According to BofA's head of global emerging markets fixed income strategy, David Hauner, heavier inflows and a surge in bullish sentiment are expected to begin as early as next year, contingent on confirmation that trade tensions will have a limited impact on these economies.

Analysis

Bank of America strategists are forecasting a significant increase in investor inflows into emerging markets (EM) beginning early next year, characterizing it as a "2026 story." This outlook, supported by a strongly positive sentiment score of 0.75, is predicated on a capital rotation away from US assets as conviction grows around the resilience of developing economies. According to David Hauner, BofA's head of global emerging markets fixed income strategy, a key catalyst for this bullish shift will be confirmation that ongoing trade tensions have a limited economic impact on these markets. The forecast implies that current investor positioning may be cautious, with a substantial sentiment and flow reversal poised to occur once this specific trade-related uncertainty diminishes, creating a compelling forward-looking opportunity in the asset class.

Key Decisions for Investors

• Investors should consider gradually increasing exposure to emerging market assets to position ahead of the anticipated capital rotation from US markets.
• It is critical to monitor economic data and corporate earnings from key developing nations for evidence that the impact of trade tensions is minimal, as this is the primary trigger for the bank's bullish thesis.
• Given the commentary originates from a fixed income strategist, particular attention should be paid to opportunities within emerging market debt, which could be a primary beneficiary of the forecasted inflows.
• Consider a relative value trade, potentially underweighting US assets while overweighting a diversified basket of EM securities, if the thesis of EM resilience begins to materialize in late 2025.