Risk appetite barometers suggest emerging market investors are becoming more cautious after the strong performance in the asset class in May and June, cowed mainly by a rise in volatility across global equity markets.
Analysts say risk aversion remains low in historic terms but see investors less prepared to take on fresh exposure over the quiet summer months.
French bank Calyon's risk aversion barometer rose 3.4 percent to 94.9 points last week, with most of its components pointing to higher risk aversion. Equity market volatility led the way, rising 15.1 percent.
"The key trigger for the rise was equity volatility," said Mitul Kotecha, head of global foreign exchange research at Calyon.
"Generally we're seeing a global malaise in equity markets, with an asymmetric reaction in the US and in emerging markets to what has been a fairly upbeat earnings season."
The Chicago Board Options Exchanges' Market Volatility Index - also known as the fear gauge and a benchmark measure of US stock market volatility - has edged up in the past three months.
In April, the VIX fell to an eight-year low of 12.89, but it now stands at around 17.3.
Kotecha said the US Federal Reserve interest rate hike in June may still be having a residual negative impact on investor sentiment, with markets also uncertain on the pace of future monetary tightening.
Higher US borrowing costs tend to slow down the international capital flows on which emerging markets rely while also reducing the returns on higher-risk assets in relation to safe-haven US Treasuries.
Persistently high oil prices, with crude still over $40 a barrel, were also weighing. High fuel costs eat into many firms' profit margins.
Kotecha added that the barometer remained at a low level and in a narrow range and said he did not expect a spike in risk aversion over summer.
"There is reduced liquidity over summer and we have had shocks in past, but there's nothing on the horizon to suggest we'll have one this time round."
INVESTORS TURN NEUTRAL: Analysts at Bank of America said their Risk Appetite Monitor had moved to more neutral levels after peaking in early July.
The softer reading had been driven by the equities sub-component, which weakened throughout July in all three emerging market regions, the bank said in a research note. The index covers Asia, EMEA (emerging Europe, Middle East and Africa) and Latin America.
"As of last Thursday the index reading was at plus 16, which is relatively high, but it's down from around 25 at the start of the month," said Guillermo Estebanez, a currency strategist at Bank of America.
A reading of zero marks the split between investors in risk seeking or risk aversion mode. The index had fallen as low as minus 40 in April and May when emerging markets were hit by rising expectations for US rate hikes.
Estebanez said US economic data and interest rate expectations continued to be the main drivers of the index.