The latest HSBC Emerging Markets Sentiment Survey paints a gloomy picture, with investors at their most cautious since we began our series of polls two years ago.
Just 15 per cent feel bullish about the outlook for emerging markets over the next three months, down from 21 per cent in our March survey. The number feeling bearish has risen to 38 per cent from 30 per cent, giving an overall net sentiment score of minus 23 – the lowest reading to date.
This survey, the eighth in the series, was conducted between 21 April 2022 and 1 June 2022 among 125 investors from 120 institutions representing USD538 billion of EM assets under management.
The fieldwork coincided with heightened volatility in financial markets, a deteriorating global economic outlook, and increasingly hawkish narratives from global central banks. The ongoing Russia-Ukraine war and the resultant disruption to supply chains added to the headwinds.
Investors still see interest rate hikes from developed market central banks, particularly the US Federal Reserve, as the key risk to emerging markets – though concerns over the outlook for China’s growth and the impact of the war are also gaining in profile. Nearly two-thirds of those who responded to our survey expect a recession in Europe over the next two years, while 56 per cent anticipate one in the US. And a sizable 37 per cent of the investors see further significant increases in cereal prices, which are particularly important to many emerging economies.
Against this backdrop, investor risk appetite – measured on a scale where 0 is “no risk” and 10 is “highest risk” – has fallen to 5.17 from 5.75, another new low. Yet it is notable that a small minority (6 per cent) expressed a strong risk appetite (9-10), versus none in the past two surveys, suggesting that some investors think peak bearishness has already passed.
Consistent with the overall gloomy mood, cash holdings keep rising. Those with more than 10 per cent cash in their portfolio as a percentage of assets under management shot up to 33 per cent from an already high 25 per cent in the previous survey. This could be in part because cash now earns relatively decent returns due to central bank rate hikes.