Emerging markets still in favour: BofA-Merrill Lynch survey.
The fear that the government may not be able to deliver on its fiscal consolidation agenda has started bothering global investors. They have have cut their exposure to India this month.
According to a Bank of America-Merrill Lynch Fund Manager survey, Asia-Pacific investors have cut their exposure in India and Malaysia, but raised their weight on China, Taiwan and Hong Kong. The survey said 59 per cent of the fund managers polled were ‘underweight’ on India in February, compared to 40 per cent in January.
“Excess optimism on emerging markets’ equities has been scaled back. A net 35 per cent of investors are overweight on equities in February, which is down from 47 per cent in January. Concern over sovereign debt default has caused a jump in risk aversion. The share of investors overweight on cash is up 2 per cent as compared to January,” the survey revealed.
According to the findings, all global growth and risk indicators moved lower in February and investors increased their cash balances from 3.4 per cent to 4 per cent of the total assets allocated in emerging markets. However, the survey also maintained that emerging markets were still the favoured global region, where investors see the best corporate profit outlook.
Since the beginning of this year, the stock market barometer, the Bombay Stock Exchange’s Sensex, had dipped 5.9 per cent. Foreign institutional investors were net sellers of Rs 1,427 crore ($303 million) this month in the Indian equities market. Most of this selling has been primarily from exchange traded funds, which have reduced their exposure to India and other emerging markets.
According to EPFR Global, which tracks flows to global markets, the first full week of February was a painful one for emerging markets’ equity funds in general and the diversified global emerging markets’ equity funds. Investors pulled $2.9 billion; $1.76 billion of this, a 60-week high, came from GEM Funds.