Expand chart
Reproduced from TCW Group; Chart: Axios Visuals

A growing chorus of U.S.-based fund managers is betting that emerging market stocks and bonds are poised to outperform U.S. assets this year. The momentum for emerging markets has grown so strong that it has become almost a consensus trade, with investors even urging clients to buy EM junk bonds.

What's happening: Following 2019's blowout returns for U.S. stocks and strong performance for high yield, government and even municipal bonds, investors expect U.S. assets to fall to earth in 2020 and are positioning in emerging markets.

  • Companies located in emerging markets sold a record $118 billion of high-yield dollar bonds last year, doubling the pace from five years before, according to Dealogic, and are expected to see even more allocation in 2020.
  • In November, Henry Schwartz, founder of data provider Trade Alert, wrote in a note that investors had gone on a "spending spree" buying call options of the ETF that tracks EM equities.

What they're saying: "Emerging markets present top 2020 opportunities," UBS Global Wealth Management's CIO Mark Haefele wrote in a recent note to clients.

  • "Emerging market debt surfaced as our top choice," JPMorgan Asset Management CIO Bob Michele wrote in a late December note.
  • "The emerging markets will be the big winner of 2020," Jim Paulsen, chief investment strategist at The Leuthold Group, told CNBC.
  • “Don't stop believin' in Emerging Markets," analysts from Wasatch Global Investors titled a recent note to clients.

Further, top analysts at Deutsche Bank and Schroders have said they expect EM currencies to outperform in 2020, and Morgan Stanley and Citigroup are betting on emerging fixed-income assets.

Why it matters: Bullish fund managers are putting their money where their mouths are, laying down bets that EM equities, debt and currencies are primed to deliver solid returns for their clients, which include pension funds, retirement accounts and endowments, among others.

Yes, but: While emerging nations like India, South Africa, Brazil and Mexico have typically had stronger economic growth than developed countries like the U.S., Japan and Germany, that may not be the case in 2020.

  • If growth doesn't deliver, asset prices are unlikely to see significant gains, derailing the popular theme.

Threat level: Major asset managers largely ignored EM for years and they now may be facing “secular stagnation,” and a breakdown of growth, Robin Brooks, managing director and chief economist at the Institute of International Finance, warns.

  • Emerging countries also are facing challenges like "increased automation, climate change and de-globalization," which are "possible threats to potential growth in the decades to come."

Go deeper:

Go deeper

New York City schools will not fully reopen in fall

Photo: Spencer Platt/Getty Images

New York City Mayor Bill de Blasio announced at a press conference on Wednesday that schools will not fully reopen in fall, and will instead adopt a hybrid model that will limit in-person attendance to just one to three days a week.

Why it matters: New York City, once the epicenter of the coronavirus outbreak in the United States, is home to the nation's largest public school district — totaling 1,800 schools and 1.1 million students, according to the New York Times. The partial reopening plan could prevent hundreds of thousands of parents from fully returning to work.

Treasury blames lenders for PPP disclosure debacle

Illustration: Aïda Amer/Axios

The U.S. Treasury Department is pointing the finger at lenders for errors discovered in Monday's PPP data disclosure.

What they're saying: "Companies listed had their PPP applications entered into SBA’s Electronic Transmission (ETran) system by an approved PPP lender. If a lender did not cancel the loan in the ETran system, the loan is listed," a senior administration official said.

Updated 48 mins ago - Politics & Policy

Coronavirus dashboard

Illustration: Eniola Odetunde/Axios

  1. Global: Total confirmed cases as of 10:30 a.m. ET: 11,863,477 — Total deaths: 544,949 — Total recoveries — 6,483,402Map.
  2. U.S.: Total confirmed cases as of 10:30 a.m. ET: 2,996,679 — Total deaths: 131,486 — Total recoveries: 936,476 — Total tested: 36,878,106Map.
  3. Public health: Deaths are rising in hotspots — Déjà vu sets in as testing issues rise and PPE dwindles.
  4. Travel: How the pandemic changed mobility habits, by state.
  5. Education: Harvard and MIT sue Trump administration over rule barring foreign students from online classes.
  6. 🎧 Podcast: A misinformation "infodemic" is here.