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Hope springs eternal

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HSBC EM Sentiment Survey #15

  • Investors are feeling modestly bullish about emerging markets, our 15th survey finds
  • They see the global rates outlook as the key risk – both for better, and for worse
  • Risk appetite has improved, and cash levels are down

Modestly bullish

Investors feel modestly bullish about emerging markets (EM) despite the uncertain global rates outlook, according to HSBC’s 15th Emerging Markets Sentiment Survey.

The proportion of investors surveyed who feel “bullish” about EM prospects over the next three months has risen to 41%, up from 32% in the December survey, while the “neutral” camp has shrunk to 44% of respondents, down from 55%. The proportion feeling “bearish” is 15%, up from 8%.

This means that on a net basis (net of bullish versus bearish sentiment) not only do investors retain a constructive view on the asset class, but net sentiment has also improved slightly to 26% from 24%.

Investors’ cash holdings have also seen a sharp drawdown to a weighted average level of 5.0% of their assets under management (AuM) from 5.6% in the December survey. Meanwhile their “risk appetite” score – measured on a scale where “0” is “no risk” and “10” is “highest risk in EM” – has picked up to 6.5 (from 6.3) on a weighted average basis, its highest level in a year.

This visible decline in the weighted average cash holdings, along with further improvement in risk appetite, suggests that some fund managers have already increased exposure to EM, although part of this fall might also be due to redemption needs, given large outflows from EM funds.

The survey was conducted between 30 January and 20 March among 121 investors from 120 institutions, representing USD362bn of EM assets under management. The fieldwork was undertaken as the markets sharply revised down their expectations of rate cuts from the core central banks, particularly from the US Federal Reserve.

It is perhaps unsurprising, then, that the rates outlook continues to dominate risk perceptions. The prospect of developed market interest rates staying higher for longer than expected was cited by 39% of respondents as a key concern, replacing “recession in major economies” as their top worry. At the same time, however, potential rate cuts by core central banks are still seen as the key upside risk, cited by 35% of investors.


Investors have trimmed their bullishness on Latin America somewhat, but it still remains the only region with net positive sentiment scores across all asset classes. Indeed, it is seen as having the most positive outlook for every asset class except for equities, where investors see a brighter outlook in Asia. Sentiment on EM FX remains broadly unchanged given uncertain global macroeconomic conditions and a strong US dollar.

On EM fixed income, the preference for local currency and hard currency debt is almost evenly split. Investors think the outlook for EM equities is a little less encouraging than it was three months ago, though EM equities are still expected to outperform their developed market counterparts.

We also asked survey respondents for their attitudes towards environmental, social and governance (ESG) investing. Fewer investors say they run an ESG portfolio directly compared with our December survey, though those who are running an ESG portfolio partly or indirectly has risen sharply to 23%.

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