Investors remain bullish on EM, Asia most preferred – HSBC survey by Investing.com

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

Bullish positions on EM fell to 38% in August-September from 40% in the previous survey, HSBC said, with a large proportion of investors remaining positive on the sector. The survey covered 121 investors from 119 institutions with holdings of approximately $430 billion in EM assets under management.

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

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

The bullish sentiment towards Asia also came amid deteriorating sentiment towards Latin America, particularly in FX. Sentiment towards Africa improved, albeit slightly.

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

Investors have grown less bullish on EM stocks and less convinced the sector will outperform.

However, the HSBC survey showed that investors have reduced their net global exposure to emerging countries. This reflected some currency strengthening as the currency’s strength was largely played out in riskier Asian markets.

Investors remained uncertain about the US election and also feared a potential recession in major economies.

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