Fund Managers Turning Bullish on Emerging Markets: BofAML Survey
Mumbai: A recent Bank of America-MerrillLynch(BofAML) survey showed that global fund managers’ allocation to emerging market equities has improved to net 5% overweight in February from net 6% underweight in the previous month, the biggest monthly jump in 11 months.
The global bank said that the current allocation is still 0.6 standard deviation below the long-term average. The bank said the dollar is the main reason behind the shift in allocation. “Feb FMS shows consensus strong $ view faltering at margin with rotation to EM, energy & materials,” said BofAML in a note. The survey showed that the cash level held by fund managers fell to 4.9% from 5.1% in January but remained higher than the 10-year average of 4.5%.
In the last three months of 2016, emerging markets had seen significant outflows due to the hike in interest rates and bond yields in the US along with Donald Trump’s promise of a fiscal stimulus to bolster the economy. The long US dollar is being seen as the most crowded trade and the percentage of fund managers who think that the US dollar is over-valued is the highest since September 2006, the survey showed. The bank’s February survey covered 175 fund managers who have $543 billion in assets under management. The survey also showed that 34% of the fund managers view gold as the best investment bet if the world shifted decisively towards protectionism, which is seen as the biggest catalyst for a bear market. About 36% of the fund managers view the European elections raising disintegration risk as the biggest tail risk to markets, while 32% see trade war as the biggest risk.