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Strongest bearish signal towards EM in a year
A survey of investors in emerging markets shows that risk sentiment deteriorated sharply and the bias is strongly bearish
Over a two-week horizon, 68.4% of investors in the survey conducted by Societe Generale were bearish, more than double the 33% registered a month earlier.
The survey was carried out in late May – early June among 98 customers of the bank's cross-asset research division; 50 of the clients were hedge funds, 48 were real money investors such as pension funds.
The survey produced "the strongest bearish signal we have observed since May 2012, at the peak of the Greek debt crisis," the Societe Generale analysts said.
"Meanwhile, the population of bullish investors collapsed to only 24.5% of the total."
Hedge funds were significantly more bearish than real money investors, with 78% of the hedge funds being bearish, compared with 58.3% of real money investors.
For the medium-term – defined for the survey as a three-month horizon – the bias is also negative; 46.9% of the total number of investors are bearish on emerging markets for that time horizon, while only 42.9% are bullish compared with 61.4% a month earlier.
Real money investors are "much more bullish" than hedge funds for the medium term, the survey showed; specifically, 54.2% of real money investors have produced a bullish answer for the next three months, compared with just 32% of hedge fund investors.
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From a technical point of view the picture "has worsened dramatically over the past month," the analysts said.
"There are considerably more investors that feel that they are over-invested, meaning that their risk position should be reduced if they were to be aligned with their sentiment, rather than the opposite."
The survey showed that 58.2% of total investors feel that they were over-invested, with just 27.6% feeling under-invested.
"This is potentially negative for global emerging markets, as it points to the need for higher bearish risk-taking," the analysts said.
Investors' bearish mood doesn't differentiate too much between asset classes. Local currency debt was preferred by investors by only a marginal lead, followed by hard currency debt.
Foreign exchange was third while the least-preferred asset class were equities.
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