Emerging-market investors favour Indonesia and Russia

Mar 17, 2010

Meanwhile, a net number of investors are overweight Japan for the first time in 19 months, while Europe suffers a further sell-off, according to Bank of America Merrill Lynch's March survey.

Globally, investors have turned more bullish on equities this month, with a net 46% overweight the asset class, compared to 33% in February, according to Bank of America Merrill Lynch's monthly survey of fund managers.

However, sentiment on Europe has worsened, with a net 21% of global investors underweight European stocks, as against 11% last month, finds the survey, released yesterday. Japanese and US equities appear to have benefited, with the former posting its first net overweight (6%) since July 2008 and the latter recording a net overweight of 19%, the highest for 15 months.

Emerging markets remain the most favoured regional grouping, despite investors scaling back to a net overweight of 33% from 47% two months ago.

Specifically, Russia and Indonesia are by far the most popular markets among global emerging market (GEM) investors. The former posted a net overweight of more than 70% and the latter rose from around 15% net overweight to over 50%, its biggest overweight since the survey began.

Meanwhile, GEM investor sentiment is more positive on China, which went from net neutral in terms of investor preference to around a net 10% overweight. Moreover, a net 24% expect the Chinese economy to strengthen over the next 12 months, up from just 7% last month. Malaysia remains the most underweighted country among GEM investors.

However, Asia-Pacific ex-Japan investors take somewhat different views, significantly scaling back their positions on China, Indonesia and Taiwan (from significantly overweight to slightly underweight). They are sharply more positive on Australia and India (which both went from net underweight to net overweight) and Malaysia (which remained net underweight, but only by 7%, as against 25% last month).

In terms of sectors, the major bets by GEM investors are a net 94% overweight consumer discretionary and a net 65% underweight utilities. They have scaled back their underweight in materials.

Asia-Pacific investors also favour the consumer sector, boosting positions in those stocks as well as in cyclicals. They, too, are underweight utilities, as well as media, and they have increased overweight positions in retail, energy, autos and materials. Technology is no longer the most loved sector in the Asia region, with the region's investors having cut their overweight position in tech significantly.

Meanwhile, inflation expectations have fallen further, with investors seeing rate hikes as less likely. The net percentage of the global panel expecting inflation to increase in the next year has fallen to 34% from 46% in February and 61% in January.

European investors have sharply scaled back their expectations of a rate hike by the European Central Bank before October. Eighty-five percent of European respondents are ruling out a hike before the fourth quarter, up from 45% in February.

Investors view change in monetary policy as slightly less of a threat to macroeconomic stability. Around half of respondents (48%) describe monetary policy as an "above normal" risk, compared with 55% in February. A net 58% of global investors expect long-term interest rates to increase, compared with a net 65% in February.

A total of 207 managers, managing a total of $589 billion, participated in the global survey from March 5 to 11. A total of 165 managers, managing $403 billion, participated in the regional surveys.