Overweight on others, resolutely underweight on India, shows survey; generally sombre global outlook for coming year.
India is the least favoured BRIC (Brazil, Russia and China are the others) nation among top global investors. Large foreign funds will end 2011 underweight on India and overweight on the other three, says a survey by Bank of America Merill Lynch (BofAML).
This month, Brazil, Russia and China gained the lion’s share of investor interest. The allocations to Brazil shot up, with a net 58 per cent of investors reporting an overweight position, the highest since April 2008.
“Fund managers have (in 2011) again backed away from India,” said the survey of global fund managers. Around 190 institutional investors were polled, with combined assets of $608 billion. It found nearly two-thirds of respondents expecting 2012 to be a year of low growth and below-trend inflation. Investors indicated a preference for US and emerging market equities. Also, the break-up of the euro zone, involving a country possibly leaving the single-currency bloc, and a US sovereign debt downgrade remained the top concerns for investors going into 2012.
Risk-averse investors stuck to a high level of cash holdings in December as they prepare for slow growth next year and a potential euro zone break, said the survey.
“The gap between US and European profit expectations is currently at a record. Within equities, the US and emerging markets remain the favoured regions, while Europe continues to be deeply unloved. Sector positioning remains defensive, with health care the world’s most popular sector, followed by tech and staples, while banks remain totally out of favour,” said Michael Hartnett, chief global equity strategist at BofAML.
Investors believe 2012 will be tough for growth. A net 27 per cent of the panel said the global economy would get slower over the next 12 months. While expectations for Chinese growth are also lower, 80 per cent of fund managers believe China will manage growth higher than seven per cent and avoid a “hard landing”.
‘BRIC countries’ was coined by Jim O’Neill, chairman of Goldman Sachs Asset Management, to describe the power of the ‘Big Four’ of the emerging world. In a 2001 artcile, he’d stated that future growth would be driven by these large emerging markets.
The Bombay Stock Exchange benchmark, the Sensex, has been worst performing index globally, down 22 per cent from its peak this year. Policy making problems in the government have been a reason, aiding an economic slowdown and soaring inflation.
Those expecting a US sovereign debt downgrade rose to a net 70 per cent in December from 53 per cent a year before, highlighting that it was a key risk for investors. About eight per cent of respondents were overweight on global equities. Bond allocations moved to a net 27 per cent underweight, compared with 23 per cent underweight last month.
Views on market liquidity conditions deteriorated, with a net 13 per cent saying these were negative, the lowest reading since April 2009, compared with zero per cent last month. Hedge funds reduced gearing levels. The ratio of their gross assets to capital fell to 1.41 from 1.47 last month. Their net exposure to equity markets — measured as long minus short as a percentage of capital — rose to a four-month high of 31 per cent from 26 per cent in the previous month.
