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.

Emerging Market

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

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.