The dust has settled on a scintillating first quarter for emerging markets but the cross-asset rally of the first three months has already run out of steam. A survey by Societe Generale of 69 EM investors shows that over half are bearish — at least for the near-term.
This marks quite a turn-around from the March survey, when 80 percent of investors declared themselves bullish on emerging markets. What’s more, investors are currently running very little risk and 47 percent of hedge fund respondents (these make up half the survey) feel they are over-invested in EM. (The following graphic shows the findings — click on it to enlarge)
Almost a quarter of the hedge fund and real money investors are neutral tactically on the market, compared to just 4.5 percent last month. Serious optimism has dried up, SocGen commented:
Looking at the distribution of answers, it is quite clear that the mega-bullish investor on EM has disappeared at this point.
The return of worries about the euro zone debt crisis, U.S. growth and a slowdown in China have all contributed to a higher degree of pessimism on financial markets. It’s not all gloom though. Looking at emerging markets over the next 3 months, sentiment does pick up, with 64 percent of investors bullish. So this falling out of love with EM could be a temporary blip.