The May Fund Manager Survey of BofA Merrill Lynch shows an increase in global investors’ allocations to emerging markets (EM). A net +29% are OW the asset class, up from +22% last month. Emerging Markets is now the most favored region, but positioning remains some way off the +56% high seen in November 2010.
Increasing allocations to EM likely explained by weaker global growth expectations, lower inflation expectations and elevated risk appetite. Global growth diffusion index falls from +27% to +10%, while inflation expectations fall from +69% to +61%. BofA’ analysts believe recent EM relative underperformance mostly over, but outperformance awaits an end to the EM tightening cycle.
EM investor views
Emerging markets investors maintain big bets on the EM consumer and EM energy, with UW’s on almost all other sectors. Favored are cons disc (+58%) and energy (+37%), while least favored are the defensive sectors of utilities (-68%), staples (-37%) and telecoms (-26%). Industrials and materials positions are cut sharply to UW.
Country positioning remains broadly unchanged, with Russia (+53%), China (+42%) and Indonesia (+26%) most favored. Brazil positions are reduced to +21%, consistent with the cut in materials positions. Least favored are Chile (-53%) and India (-47%). Positions in S Africa are slashed to -32%.
Asia Pac investor views
Asia Pac investors maintain a pro-cyclical stance, with industrials (+50%), tech (+44%) and energy (+13%) the most favored sectors. Least favored remain the defensive sectors of utilities (-50%), insurance (-30%) and media (-25%).
Asia Pac investors continue to favor Taiwan (+16%) and China (+16%) though China positions were trimmed. Least favored markets are India (-6%), Philippines (-13%) and Australia (-28%). The Australia UW has increased sharply in May.
