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- Global Research
- General Research Insights
- Emerging markets
From ‘neutral-land’ with love
- EM investors are feeling neutral as they assess a constantly shifting global backdrop…
- …yet they retain a positive bias, with a rise in cash levels and risk appetite…
- …as they balance risk of trade tensions with hopes of a rebound in China and Europe
HSBC Emerging Markets Sentiment Survey
Investors are undecided on the outlook for emerging markets (EM) in the near term against a rapidly shifting global backdrop, according to HSBC’s 19th EM Sentiment Survey.
A sizeable 53% of respondents felt ‘neutral’ on EM prospects over the next three months, up from 38% in the December survey. Those who are ‘bearish’ fell to 10% from 23%, while those who are ‘bullish’ remained unchanged at 36%.
This means the net sentiment, which is the net of bullish versus bearish views, stayed positive for the tenth consecutive survey – suggesting respondents still have a positive bias on EM as an asset class.
The encouraging improvement in net sentiment is reflected in a pick-up in the ‘risk appetite’ score, measured on a gauge where ‘0’ is ‘no risk’ and ‘10’ is ‘highest risk’, to 6.5 from 6.1 on a weighted average basis. Investors have also beefed up their cash holdings to 4.9% of assets under management from an all-time low of 4.4%, suggesting they are getting ready to deploy more risk.
The survey was conducted between 24 January and 12 March 2025 among 126 investors from 125 institutions, representing USD439bn of EM assets under management. The fieldwork coincided with rapid shifts in terms of the drivers of financial markets; from ‘US-exceptionalism/de-exceptionalism’ to tariffs/trade tensions, geopolitical developments, China stimulus, German fiscal reform, and US recession worries – to name just a few – causing a high degree of uncertainty and volatility.
Investors worry most about “tariffs and trade tensions” as the key downside risk to the EM outlook and a substantial 55% of the respondents don’t believe these risks are priced in enough for EM assets.
On the other hand, 45% believe a “strong rebound in mainland China” is the biggest upside risk to the EM outlook, which is up strongly from 29% in the previous survey.
EM investors turned more neutral on the growth outlook with the majority expecting activity in developing economies to remain broadly unchanged over the next 12 months. But this masks underlying regional divergences as investors are warming up to a better growth outlook in Central & Eastern Europe (CEE) versus Latin America (LatAm). We also surmise from existing regional preferences that investors are becoming hopeful of a potential comeback in European economic activity because of stepped up fiscal spending plans.
Strategy
It’s difficult to argue for strong regional preferences in this survey. While CEE stands out based on the current positioning of investors, LatAm has made something of a comeback in terms of forward-looking expectations and Asian equities are still in favour. Net sentiment for EM FX has improved substantially on the back of a softer US dollar more recently. Investors show some preference for hard currency debt over local currency debt with Middle East being the favoured region. EM equities have had a shot in the arm, showing a sharp improvement in net sentiment.
On the environmental, social and governance (ESG) front, there was a slight increase in the share of investors running an ESG portfolio directly and partly/indirectly compared to the previous survey.
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The following analyst(s), who is(are) primarily responsible for this document, certifies(y) that the opinion(s), views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Dr. Murat Ulgen, Ali Cakiroglu, Edward Parker, CFA, Paul Mackel, Frederic Neumann, Simon Williams, Pin Ru Tan, Himanshu Malik, CFA, Alastair Pinder, CFA, Ramya R S and James Rydge
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