Perhaps reflecting the positive impact of mainland China’s reopening, 53% of the respondents now expect EM economic growth to accelerate over the next 12 months, versus 34% in December. Digging deeper into the potential impact of stronger-than-expected mainland Chinese growth, nearly half of investors believe base metals (47%) and tourism (46%) would be the key beneficiaries, followed by energy commodities (42%) and consumer products (39%) versus capital goods at only 13%. This suggests that investors expect the property sector and consumption, rather than investments, to lead the rebound.
What does all of this mean for investor positioning and strategy? Back in December, survey respondents were most upbeat about Latin America, and since then the region has indeed outperformed across all asset classes. Now, investors seem to have trimmed that bullishness in favour of Asia, whose net sentiment score has improved across the board, and especially for equities and FX. This positive tone towards Asian equities is reflected most in mainland China, Taiwan and India. Outside of Asia, Brazil and Saudi Arabia equities are favoured.
Among asset classes, investors seem to have grown increasingly bullish on EM FX, despite the recent rise of the US dollar, with 67% expecting EM currencies to appreciate over the next three months, up sharply from 22% in the December survey. In EM fixed income, the preference for local versus hard currency debt seems to be more balanced now versus a distinct bias for the hard currency debt previously. And a majority of respondents (63%) now expect EM equities to outperform their DM counterparts over the next three months.
Finally, the survey suggests a further pick-up in environmental, social and governance (ESG) investing, with the proportion of investors running an ESG portfolio, either directly, partly or indirectly, rising to 38% from 29% in the December survey. This could perhaps be attributed to regulators implementing stronger ESG disclosure and accountability rules.