LIVE MARKETS-Investors most confident to bet on EM since 2023, HSBC says

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INVESTORS MOST CONFIDENT TO BET ON EM SINCE 2023, HSBC SAYS

As the end of the first half of the year draws near, HSBC analysts say investors are optimistic about the outlook for emerging markets, albeit with a little trepidation.

HSBC's survey, that included institutions representing $414 billion worth of assets under management in emerging markets, showed that investors have turned the most bullish on the segment in over two years.

Latin America is a region least affected by global trade uncertainty, where the brokerage says traders are lapping up local currency bonds that are attractive as most central banks start lowering interest rates.

Brazilian credit is a top pick with real interest rates at one of the highest in the region and that the economy ranks at one of the least exposed to U.S. trade risk.

"International inflows going forward do have space to continue, because of this narrative that people are looking outside of the U.S. and want to see countries that have big liquid quality names but also with no geopolitical risk," David Nicholls, an EM portfolio manager at East Capital.

Argentina is also a preferred pick as it emerges healthier and liberalised under President Javier Milei.

Africa has seen the biggest improvement in sentiment recently according to HSBC. Local currency debt is seen as lucrative as investors price-in that regional central banks could lower borrowing costs as inflation pressures ease.

Further, markets are also eyeing greater carry prospects for regional currencies in the event of persistent U.S. dollar weakness, the brokerage said.

Zambia's kwacha ZMW= has appreciated over 20% and Ghana's cedi GHS= has strengthened more than 40% so far this year as turnaround efforts take effect.

On the equities front, the brokerage said Asian markets scored well led by China .CSI300, .HSI, on optimism around fresh fiscal stimulus along with favorable preferences for domestic technology companies.

The latest tailwind for Korean equities .KS11 has been newly-elected President Lee Jae Myung's stimulus plans, while India .NSESN is seen as relatively insulated from tariff threats.

However, much of the optimism is guarded, HSBC says, as markets brace for the global economic fallout from trade uncertainty that investors say is likely to be reflected in the next 12 months.

(Johann M Cherian and Purvi Agarwal)

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