Investors remain bullish on EM, Asia most preferred- HSBC survey

Investing.com– Investors remained bullish on emerging markets, an HSBC survey showed, with Asian currencies being the most preferred asset class in the sector in the face of falling U.S. interest rates and yields. 

Bullish positions on EMs fell to 38% in August-September from the prior survey’s 40% showing, HSBC said, with a bulk of investors remaining positive on the sector. The survey covered 121 investors from 119 institutions with holdings of about $430 billion in EM assets under management. 

49% of respondents were neutral on EMs, while 13% were bearish. 

Asia is the most preferred region among EM investors, the survey showed, especially in the foreign exchange sector. Regional currencies are expected to benefit greatly from increased yield differentials, as the Federal Reserve begins cutting interest rates. 

Bullish sentiment towards Asia also came amid deteriorating sentiment towards Latin America, especially in FX. Sentiment towards Africa improved, albeit slightly. 

Survey respondents were also most bullish towards FX, with 30% of respondents favoring the sector. Investors largely expect Asian currencies to appreciate against the dollar in the next three months. 

Investors grew less bullish on EM equities and less convinced that the sector will outperform. 

Still, HSBC’s survey showed that investors had reduced their net overall positioning across EMs. This reflected some strengthening in the Japanese yen, as strength in the currency largely unwound carry trades into more risky Asian markets. 

Investors remained uncertain over the U.S. elections, and were also fearful of a potential recession in major economies. 

Investors also expect slower growth in EM economies, and see increased disinflation across the region.