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Global funds cut bearish stance on India

BS Reporter / Mumbai 13 Jun 12 | 12:20 AM

Fund managers have pared their underweight positions on India in June, even as they have reduced their overall exposure to emerging markets to the lowest level since October 2011.

India, the third least-preferred among the emerging markets, has seen its underweight position coming down to 35 per cent in June from 55 per cent last month, according to the latest survey of fund managers by Bank of America Merrill Lynch (BofA-ML).

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However, India hasn’t seen any improvement in fund allocation by global investors, as they have gone underweight on emerging market equities in June for the first time in seven months.

Only two emerging markets have seen overweight positions in June
  Underweight Neutral Overweight
June Indonesia, South Africa, Thailand, Malaysia, India, Taiwan Russia, Korea, Mexico China, Brazil
May Brazil, Mexico, South Africa, Malaysia, India, Taiwan Indonesia China, Russia, Korea, Turkey, Thailand
Source: Bank of America Merrill Lynch Fund Manager Survey

According to the survey among the investment community, growing threats to the fragile European financial system, volatile markets and weaker macro data have impacted investor appetite for emerging markets.

“Hopes expressed last month of a policy response have now become expectations. Markets are keenly anticipating decisive action from key policy meetings in June," said Michael Hartnett, chief global equity strategist at BofA-ML Global Research.

China and Brazil were the only two emerging markets to have overweight allocations in June, while Taiwan, Malaysia and India are the least-preferred markets. China’s overweight position is at the second-highest level since the start of the survey in 2005, as expectations of a Chinese “hard-landing" remained relatively subdued. The survey, which was conducted between May 31 and June 7, surveyed a total of 260 global fund managers, managing $689 billion worth of assets.

India’s benchmark 30-share Sensex has gained more than 4 per cent since the start of this month. The index closed at 16,862.8, up 194.79, or 1.17 per cent, on Tuesday.

While foreign institutional investors’ investments in the Indian market has remained flat this month, the net investment in Indian stocks so far in 2012 stands at $8.5 billion.

The fund manager survey has indicated investors still continue to remain very risk-averse. Average cash balances are at their highest level since the depth of the credit crisis in January 2009 at 5.3 per cent of portfolios, up from 4.7 per cent in May.

As per the survey, net 11 per cent of investors believe the global economy will deteriorate in the coming 12 months – the weakest reading since December 2011. In May, a net 15 per cent believed the economy would strengthen.

Though fund managers believe global equity valuations are the most undervalued since August 2011, they are awaiting support from policymakers in the form of stimulus. A net 48 per cent of the respondents have said global equities are undervalued, the reading which is lowest since the survey began and up from 35 per cent in May and 22 per cent in April

The majority of the fund managers believes that global monetary policy is “too restrictive" and are expecting a big policy response.

Markets have already started to build in expectations of concrete policy moves in the form of easier monetary policy from the European Central Bank and further quantitative easing by the US Federal Reserve at its meeting on June 19-20.

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