Investors Remain Bullish on Emerging Markets, Favoring Asia Most – HSBC Survey

Investors continue to show optimism towards emerging markets, according to a survey conducted by HSBC, with Asian currencies topping the list of preferred assets in this sector due to declining U.S. interest rates and yields.

The survey indicated that bullish positions on emerging markets (EMs) slightly decreased to 38% during August-September, down from 40% in the previous survey. However, a significant portion of investors remains positive about the outlook for these markets. The survey included 121 investors from 119 institutions managing approximately $430 billion in EM assets.

Nearly half (49%) of the respondents maintained a neutral stance on EMs, while 13% expressed bearish views.

Asia emerged as the favored region among EM investors, particularly in the foreign exchange segment. Regional currencies are expected to gain significantly from widening yield differentials as the Federal Reserve embarks on cutting interest rates.

While sentiment towards Asia remained strong, views on Latin America, especially in the foreign exchange market, have declined. Conversely, sentiment towards Africa has seen a small improvement.

In the survey, 30% of respondents displayed the most enthusiasm towards foreign exchange, with expectations that Asian currencies will appreciate against the U.S. dollar over the next three months.

Overall bullishness towards EM equities has lessened, with investors becoming less confident in the sector’s ability to outperform.

Despite this dip in sentiment, the survey revealed a reduction in net overall positioning across EMs. This trend aligns with a strengthening of the Japanese yen, which has corresponded with a retreat from riskier Asian markets.

Concerns about the upcoming U.S. elections and the potential for a recession in major economies have contributed to investor uncertainty. There is a prevailing expectation of slower growth within EM economies and an increase in disinflation across the region.