Investor Sentiment Towards Emerging Markets

Investing.com—Investors remained bullish on emerging markets, as indicated by an HSBC survey, with Asian currencies emerging as the most preferred asset class due to falling U.S. interest rates and yields.

Key Survey Findings

• Bullish positions on emerging markets (EMs) decreased to 38% during August-September from the previous 40%, according to HSBC.
• The survey included 121 investors from 119 institutions managing approximately $430 billion in EM assets.
• 49% of respondents expressed a neutral stance on EMs, while 13% were bearish.

Regional Preferences

• Asia is the preferred region for EM investors, particularly in the foreign exchange sector.
• Regional currencies are anticipated to gain significantly from increased yield differentials as the Federal Reserve begins to lower interest rates.
• Sentiment towards Latin America has deteriorated, especially concerning FX, while sentiment towards Africa showed slight improvement.

Foreign Exchange Sentiment

• Survey participants exhibited the highest bullishness towards FX, with 30% favoring the sector.
• Investors largely expect Asian currencies to appreciate against the dollar in the next three months.

Equity Outlook

• Investors have grown less bullish on EM equities and are less convinced that the sector will outperform.
• HSBC’s survey indicated a reduction in net overall positioning across EMs, linked to the strengthening of the Japanese yen, which has adjusted carry trades towards riskier Asian markets.

Economic Outlook

• Investors are uncertain about U.S. elections and express concerns over potential recessions in major economies.
• There are expectations of slower growth in EM economies and increased disinflation across the region.