Emerging markets are back on investors' buy lists, with expectations any U.S. interest rate hike will be delayed set to spur on the rally, according to strategists.
"The main driver behind the rebound in flows seems to have been clearly dovish signals from the Federal Reserve," said Robin Koepke, an economist at Institute of International Finance (IIF), in a report. Weaker U.S. labor market and activity data has given investors' confidence that "Fed liftoff" isn't likely before September, Koepke said.
Those dovish signals were heightened on Wednesday after the Federal Open Market Committee offered no changes to its zero interest rate policy, pushing back many analysts' expectations for a rate hike to September or December from earlier expectations for June.
In April, portfolio flows to emerging markets (EM) picked up to $35 billion, the strongest since June 2014, with equity markets attracting $21 billion of that, the highest since October 2010, the IIF said.
It's the latest confirmation of an emerging markets revival. Over the past 30 days, the MSCI Emerging Markets Index has risen around 9 percent, with some markets—such as Brazil, Shanghai, Russia and India—in bull market territory.
But to sustain the rally, markets will need to keep pushing out that first U.S. rate hike way beyond June, said Tim Condon, head of Research for Asia at ING Financial Markets.
Others also expect that the Fed's holding pattern will help emerging markets.