Investors are still upbeat about Latin America, which has outperformed other regions year-to-date. Asia remains their second-most favourite region, while the net sentiment on external debt has turned positive for Africa after a long time, which might be down to improving conditions in a few individual economies.
Investors have curbed their enthusiasm on the outlook for EM FX somewhat, most likely because of the return of US dollar strength. They have also trimmed their bullishness on local currency debt, while hard currency debt has made something of a comeback. The outlook on EM equities remains the most favourable among the asset classes, however, with 74% of the respondents expecting EM equities to be higher in the next three months. Some 60% expect EM equities to outperform developed market equities over the same period.
Engagement with environmental, social and governance (ESG) investing continues to moderate, with 37% of investors running an ESG portfolio, either directly, partly or indirectly, down marginally from 39% in June. Our ESG colleagues believe that many investors in the US are still, in fact, investing in ESG themes, but are not actively labelling their portfolios as ESG.