June 13, 2012 3:46:41 am
Global investors slashed their exposure to emerging markets (EM) equities to the lowest level since October 2011,according to the BofA Merrill Lynch Survey of Fund Managers for June.
Escalating threats to the fragile European financial system,volatile markets,and weaker macro data took their toll on appetite for EM. Investors have taken money out of EM equity funds for eight of the last 10 weeks and,by mid-month,EM equities had erased all of their 2012 gains.
Broadly,sentiment towards emerging markets has softened. A many as 17% of global asset allocators are overweight global emerging market equities,down from 34% in May. Commodities have also lost favour,with 8% of the panel underweight the asset class,the lowest reading since February 2009. Fears of a global economic slowdown have come sharply back into focus,and expectations of decisive action by policymakers have grown,according to the survey. As much as 11% of the global panel believes that the global economy will deteriorate in the coming
12 months,the weakest reading since December 2011. Last month,15% believed the economy would strengthen and the negative swing of 26 percentage points is the biggest since July-August 2011.
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Investors have adopted aggressively risk off positions. Average cash balances are at their highest level since the depth of the credit crisis in January 2009 at 5.3% of portfolios,up from 4.7% in May. The Risk & Liquidity Composite Indicator fell to 30 points,versus an average of 40. Asset allocators have moved to a net underweight position in global equities and increased bond allocations.
Support for policy stimulus has grown. A majority of the panel believes that global monetary policy is too restrictive. Six per cent take that view,the highest since December 2008. In May,15% said the policy was too stimulative. The proportion of global investors saying global fiscal policy is too restrictive has continued to rise to 28% from 23% in May.
Global equities are at their most undervalued since August 2011. As much as 48% of the global panel believes global equities are undervalued,matching the lowest level since the survey began. The reading is up from 35% in May and 22% in April.
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