A net 44% of fund managers say global emerging markets offer the worst outlook for corporate earnings of any region, and a net 18% are underweight emerging markets, says a survey.
The proportion of fund managers betting against emerging markets is the highest reading in the BofA Merrill Lynch Fund Manager Survey since 2001 and is a stark turnaround from two months ago when fund managers were slightly overweight emerging markets.
Fears about weak growth in China seem to be driving the change, with 56% of fund managers ranking a “hard landing” in China as the major tail risk they face.
In contrast, fund managers are increasingly bullish about developed market equities. The survey indicates that fund managers are overweight equities in general, with appetite for Japanese and United States stocks particularly high.
“With the support of a host of buy signals in recent weeks, the ‘great rotation’ is in full force. Our positive view of equities would be further reinforced if the loss of faith in China’s growth story turns out to be overdone,” says Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.
Fund managers seem likely to seek US exposure for some time yet, as a net 83% favour the dollar over other currencies – the highest reading yet recorded by the survey.
In contrast, bonds are increasingly unpopular among fund managers and a net 55% are underweight fixed income instruments.
BofA Merrill Lynch says 238 fund managers participated in the survey, which was carried out between July 5 and July 11.
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