Societe Generale’s head of Emerging Markets strategy, Benoit Anne, conducted monthly emerging market investor survey on positioning and sentiments for March 2013. The survey was conducted across Asia, Europe and the United States. The hedge funds and real-money investors were asked to rate their sentiments towards global emerging markets from -5 (max bearish) to +5 (max bullish) for the short-term (two weeks) and medium term (three months). Another question was about how they felt they are positioned.

Short-Term Bearish Sentiments

Benoit Anne said that investors were already turning bearish in February, but sentiments worsened further in March. The survey found that only 33 percent investors are bullish over the short-term horizon (two weeks). About 27 percent of them are neutral while 40 percent of investors are bearish. The Societe Generale sentiment indicator stood at -0.16, bearish territory.

Short-term total investors

Short-term sentiment indicator

Short-term breakdown 2

Mid-Term Bullish Bias Weakens

Over the next three month horizon, only 49 percent of the total investors remained bullish on global emerging markets. That’s a drastic fall from 65.6 percent in February. The percentage of bearish investors continues to grow as 26 percent of the total investors are bearish in the medium term. However, about 65 percent of the total investors said they see an improvement in the emerging markets outlook over the next three months.

Mid-term total investors

The mid-term sentiment indicator dropped from +1 in February to +0.74 in March, demonstrating further erosion of the bullish sentiment. In fact, the real-money investors are twice as bullish as hedge funds over the three-month horizon.

Mid-term sentiment indicator

Investor Positioning

Risk taking sentiments were already down in February, and March witnessed even further skepticism. About 36 percent of the total investors said that they think they are over-invested, compared to 31 percent who feel they are under-invested. It means that a greater number of investors think their risk position should be lowered if it is to be aligned with their sentiments.

Positioning total investors

Positioning vs sentiment

This positioning misalignment is greater for hedge funds, where 50 percent think they are over-invested, compared to just 20 percent who perceived to be under-invested. The picture is entirely different for real-money investors. About 42 percent of them felt under-invested, compared to just 22 percent over-invested.

The increasingly bearish sentiment could also be the ultimate contrarian bullish indicator.