On a more positive note, investors continue to see the potential rate cuts by major central banks as key upside risk to the EM outlook. A clear majority expect EM inflation to fall over the next 12 months. And when it comes to prospects for EM growth, while expectations have moderated somewhat, net sentiment remains positive at 9%.
What does this backdrop mean for investors’ positioning and plans? Our survey shows that their ranking of the regions has not changed much throughout the year. Latin America is still the favourite region with positive net sentiment scores across all asset classes, though Asia stands out as the preferred region in equities. Asia is also seen as the region with the strongest prospects for economic growth over the next 12 months.
EM FX sentiment has been dampened further. On EM fixed income, the preference is still for local currency over hard currency debt but a sizable 26% of the investors now like both, up from zero last time. Investors are split as to whether EM equities will move higher or sideways over the next three months, but they are still expected to outperform developed market equities.
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