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The beat goes on
HSBC Emerging Markets Sentiment Survey
- Investors in emerging markets still feel bullish, our 16th survey finds
- They see high interest rates in developed markets as the biggest downside risk…
- …and a strong rebound in mainland China as the biggest potential upside risk
Still positive on EM
Investors are still feeling positive about emerging markets (EM), according to the latest HSBC EM Sentiment Survey. Some 40% of respondents feel “bullish” about EM prospects over the next three months, while just 7% feel “bearish.”
This brings the net sentiment score to 33%, the second highest reading since our surveys began back in 2020, and an improvement on the 26% recorded in March. This may be because of the backdrop of easier financial conditions and broadly resilient global economic activity.
Investors’ risk appetite, however, measured on a scale where ‘0’ is ‘no risk’ and ‘10’ is ‘highest risk’ in EM, has moderated to 6.2 from 6.5 on a weighted average basis. This might be explained by a lack of willingness to add EM exposure ahead of summer holidays in the Northern Hemisphere, as well as by ongoing redemption pressures on their cash holdings. Indeed, investors seem to have preserved their cash positioning as the weighted average cash holdings stayed unchanged at 5% of their assets under management.
The latest survey was conducted between 8 May and 24 June among 100 investors from 100 institutions, representing USD326bn of EM assets under management. The fieldwork largely coincided with a period of reassuring data on global growth, although investors had to contend with market volatility following election results in India, Mexico and South Africa.
Investors’ primary concern remains US Federal Reserve and other developed market policy rates staying higher for longer than expected, cited by 46% of respondents. Meanwhile, a stronger rebound in mainland China is now seen as the key upside risk, cited by 34% of investors.
Investors also now feel more upbeat about the EM growth outlook over the next 12 months, with the net sentiment (net of acceleration vs deceleration) improving to 56%, the highest score since April 2021. On the other hand, survey respondents now have a slightly less benign view on the inflation outlook, with 44% expecting EM inflation to fall over the next 12 months, compared with 53% in March.
So what does this this backdrop mean for investors’ strategies?
Latin America remains their preferred destination overall, with positive views on every asset class (equities, hard currency debt, local currency debt, and FX). Survey respondents were also positive about every asset class in Asia. Indeed, Asia recorded the highest net sentiment score for equities of any region.
Sentiment about EM FX has turned negative for the first time since December 2022. On EM fixed income, the preference seems to be shifting towards hard currency over local currency debt. A majority of survey respondents expect EM equities to be higher in the next three months (59%), though fewer (38%) see them outperforming their developed market counterparts.
As usual, we asked survey respondents about their attitude towards Environmental, Social and Governance (ESG) issues. The share of investors that say they run an ESG portfolio directly has risen to 17% from 7% in March, while the share of those who run an ESG portfolio partly or indirectly has declined to 12% from 23%.
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