A survey by Societe Generale SA (EPA:GLE) (OTCMKTS:SCGLY) of investors in emerging market shows that risk sentiment in the short term (two weeks) has now bounced back to neutral from a sharply bearish view a month earlier, but the medium-term (three-month) bias has considerably worsened.
Emerging Market Investors Still Negative on Risk
Emerging market investors’ risk positions remained broadly stable from a month earlier, still showing outright short/underweight risk taking. The overall positioning index indeed remained broadly stable at -0.15, compared with -0.17 a month earlier. There was a marked difference between hedge fund investors and real money investors in terms of the positioning index, with hedge-fund positioning standing at -0.36, well below the +0.08 registered for real-money clients.
As illustrated by the chart above, the distribution of scores in terms of positioning was skewed towards a more bearish risk-taking, with the “-1” range being the largest group. Overall, 43.8 percent of total investors are now running negative risk, namely outright short for hedge funds or underweight for real-money investors, or much more than the 34.7 percent registered in May. Meanwhile, 37.5 percent were “overweight”, compared with 30.6 percent a month earlier.
EM, FX and EM Equities the Least Favorite
Emerging market investors specified that EM local debt (LCD) was still the preferred asset class, followed by hard-currency debt (EXD). LCD produced an average score of -0.19. Meanwhile, EM FX and EM equities were th least preferred asset classes at this point. This ranking showed some interesting differentiation between Real-Money and Hedge Fund investors, however, with EM currencies being the least favorite asset class among RM investors, while that spot was occupied by EM equities for hedge funds.
Emerging Market Sentiment Survey for June
The June results show an improvement in short-term sentiment after the sharp deterioration Societe Generale SA (EPA:GLE) (OTCMKTS:SCGLY) observed in May, suggesting that EM investors now believed that GEM’s initial market response reflected some overshooting. Specifically, 40.6 percent of total investors produced a bearish-bias answer, only marginally more than the population of bullish investors at 38.5 percent of the total, and more importantly, significantly less than the May reading of 68 percent of GEM investors being bearish at the time. In addition, their short-term appetite index rebounded to neutral territory, at +0.01.
GEM Correction Not Short-lived
There were 51 percent of total investors being bearish on GEM, which was more than a month earlier (46.9 percent in May), and, more importantly, the largest percentage ever recorded. In addition, the group of bullish investors has been cut, with only 39.6 percent of total investors being bullish on GEM over a 3-month horizon. In addition, our 3-month appetite index declined to -0.69, the lowest on record. Worryingly, there were now 56.3 percent of total investors that saw a deterioration of the GEM outlook over a 3-month horizon, relative to the short term, suggesting that a large number of investors now thought that the GEM correction would not be short-lived.
The emerging market client survey for June involved 96 accounts in Asia, Europe, and in the US. The Societe Generale SA (EPA:GLE) (OTCMKTS:SCGLY) sample comprised 48 hedge funds (HF) and 48 real-money (RM) investors.