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Investor confidence in emerging markets (EM) has risen sharply, according to our latest EM Investor Sentiment Survey.

Nearly three-quarters (73 per cent) of investors surveyed feel bullish about EM prospects over the next three months – the most positive reading yet in our quarterly poll, up from 46 per cent in September and 23 per cent in June.

The survey was conducted by Survation between 16 November 2020 and 7 January 2021. They asked 186 investors from 174 institutions representing around USD641 billion of EM assets under management about their attitudes to various markets and investments.

Investor confidence is underpinned by optimism about an improving growth outlook in EM economies. Nearly 90 per cent of respondents expect EM growth to accelerate over the next year, led by Asia. They are particularly positive on mainland China and India, where 35 per cent and 29 per cent respectively anticipate that growth will accelerate.

Some 66 per cent of respondents now also expect EM inflation to accelerate over the next 12 months, up from 50 per cent in September. But most (72 per cent) also think policy rates will stay broadly unchanged.

Despite improving market sentiment, cash levels remain high, with 48 per cent of investors holding more than 5 per cent of their assets under management in cash. This suggests that a more confident outlook hasn’t fully translated into risk-taking yet – and that many investors still have cash to deploy in the coming months.

Asia remains the clear overall favourite location for investment, followed by Central and Eastern Europe. While Latin America was a laggard region earlier, investors have nearly doubled their overweight positions in the region compared with the September survey.

Among asset classes, the sentiment on EM equities is particularly bullish. Eighty-four per cent of respondents expect them to rise over the next three months, and 75 per cent expect them to outperform developed market equities.

Confidence in EM foreign exchange is also growing, with investors expecting EM currencies to appreciate against the US dollar over the next three months outnumbering those who expect them to depreciate. And in fixed income, investors continue to favour local currency debt over hard currency debt.

Our survey also shows a significant further rise in engagement with environmental, social and governance (ESG) issues. The proportion of respondents running an ESG portfolio directly, partly, or indirectly now stands at 50 per cent, up from around 40 per cent in September and 30 per cent in June.

While ESG has historically been a greater focus in developed markets than EM, these findings tally with our own experience of growing demand from clients for ESG products and advice. We think the rise of ESG is set to continue.

First published 12 January 2021

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13 January 2021

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HSBC EM Sentiment Survey


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