Investor sentiment is back in “exuberance” territory, but this could be worrisome

Investors are once again bullish on emerging markets, but the return of exuberance could be a “worrisome milestone,” Colby Smith writes for the Financial Times. Analysts at EPFR Global have reported 10 consecutive weeks of large inflows into hard currency emerging market debt. And although appetite for local currency-denominated fixed-income assets has waned, interest in hard currency debt has “more than made up for it.” As it currently stands, there isn’t much more space for continued upside on EM investment, indicating that the tide could soon turn against investors who may have been a little bit too bullish on EMs after last year’s sell-off. When sentiment enters “exuberance” territory, a sell-off usually follows, but brighter global prospects could further bolster investments in EM, Smith says.