EM investors dump China for Korea

North Asia remains more favoured than Asean largely due to US growth expectations, but emerging market investors are less bullish on China than last month, according to November’s fund manager survey by Bank of America-Merrill Lynch.

Allocations to China fell dramatically, with only a net 11% of investors overweight the country, down from 56% in October. A net 56% were overweight Korea in November, up from 22% last month, and making it by far the most popular Asian nation among EM investors.

Asia-Pacific investors trimmed their OW to Korea slightly, but remained more bullish on it (with a net 24% OW) than other Asian countries. 

Like China, Thailand was a big loser among EM investors this month, who went from being neutral in October to around a net 20% underweight. But Asia-Pacific managers did not agree, switching from being underweight to overweight Thailand this month.

Australia and India remain the most unloved markets among Asia-Pacific allocators, with both seeing a rise in overweight. Meanwhile, investors slightly reduced their underweights on Indonesia, Malaysia and the Philippines.

On corporate earnings, EM fund managers showed a significant rise in confidence this month. A net 44% expect EM companies to improve profits over the next year. This compares to a net 11% in October and September’s net 8% expecting earnings to decline.

Globally investors have regained confidence in the world economic outlook following the resolution of the US debt crisis. A net 67% of respondents now expect the globaly economy to strengthen over the next 12 months, up 13 percentage points from October.

Fund managers increased their equity allocations slightly this month to a net 52% overweight, while also upping their underweight in bonds. Their biggest shift was into global EM equities, where they returned to a net overweight, while strong overweights in eurozone and Japanese stocks were moderated slightly.

Yet a small net majority of asset allocators now view equities as overvalued – the first time that has been the case since March 2004. Regionally, Europe is still considerably undervalued compared to the US.

Still, a net 59% of European fund managers expect the region’s companies to increase earnings in the next year. This is up from a net 49% in October.

In a new question, investors were asked when the US Federal Reserve will begin ‘tapering’ its bond purchases. Forty-eight percent see this happening next March, with 18% expecting it in the second quarter.  

A total of 222 panelists with $599 billion of assets under management participated in the survey from November 1–7. A total of 174 managers, managing $444 billion, participated in the global survey. A total of 111 managers, managing $280 billion, participated in the regional surveys.