Investors are showing continued optimism in emerging markets, particularly in Asia, according to a recent HSBC survey. Despite a slight decrease in bullish positions from the previous survey, the majority of investors remain positive about the sector. The survey, which included 121 investors from 119 institutions managing $430 billion in EM assets, revealed that 49% of respondents were neutral on EMs, while 13% were bearish.
Asia emerged as the most preferred region among EM investors, especially in the foreign exchange sector. With the Federal Reserve cutting interest rates, regional currencies are expected to benefit from increased yield differentials. Bullish sentiment towards Asia contrasted with a negative outlook towards Latin America, particularly in FX, although sentiment towards Africa showed slight improvement.
Survey respondents expressed the most optimism towards the FX sector, with 30% favoring it. Many investors anticipate Asian currencies to appreciate against the dollar in the next three months. However, the survey also indicated a decrease in bullishness towards EM equities, with investors less convinced that the sector will outperform.
Overall, the survey showed a reduction in net overall positioning across EMs, reflecting some currency strength as carry trades into riskier Asian markets unwound. Investors cited uncertainty over the U.S. elections and concerns about a potential recession in major economies. Additionally, they expect slower growth and increased disinflation in EM economies.
Analysis:
The HSBC survey indicates that investors are still optimistic about emerging markets, particularly in Asia, despite some concerns and a slight decrease in bullish positions. The preference for Asian currencies in the FX sector reflects expectations of benefits from increased yield differentials due to the Federal Reserve's interest rate cuts. However, there is a cautious approach towards EM equities, with investors less confident in the sector's outperformance.
Overall, the survey suggests a mixed sentiment towards emerging markets, with uncertainties surrounding global economic conditions and geopolitical factors playing a role in investor decision-making. It is important for investors to carefully assess risks and opportunities in the EM sector, considering factors such as currency movements, economic growth projections, and geopolitical developments.