Allocation of equities in emerging markets in May so far sees sharp drop: BofAML

Mumbai: Emerging markets are losing edge over other global counterparts. According to Bank of America Merrill Lynch’s Global Fund Manager Survey in May, allocation of equities in emerging markets has seen biggest drop since November 2016. “Emerging markets are no longer the consensus regional long amongst equity investors,” the survey released on Tuesday said.

However, overall allocation to equities has climbed 5% to net 34% overweight in May, having hit an 18-month low of 29% last month.

MSCI Emerging Markets fell 1.2% while MSCI World rose 1.6% in May so far.

The fund manager survey was conducted between 4-10 May where 223 panellists with $643 billion asset under management (AUM) participated in total.

Meanwhile, fund managers think that bull market in equities is not yet to come. According to the findings of the survey, “80% say equities yet to peak”.

They further said allocation to commodities was at 6% overweight, the highest since April 2012 when West Texas Intermediate (WTI) was at $105 per barrel.

Meanwhile, most fund manager surveyed said that there will be no recession until first quarter of 2020. “Only 2% of investors surveyed expect a recession this year; the consensus is for Q1 of 2020, though investors are split between 2019 (41%) and 2020 (43%),” it said.

“This month’s survey presents good and bad news,” said Michael Hartnett, chief investment strategist. “Although cash levels remain high and growth optimism is at the lowest level in over two years, a majority of investors say there is room to grow in this equity bull market and don’t see signs of recession anytime soon. Fund managers think the May rally can extend in the near-term,” he added.

Expectations for faster global growth continue to fall, according to the fund manager survey, with just net 1% of investors indicating they think the global economy will strengthen over the next 12 months. This is the lowest level since February 2016

Most of the fund manager survey said that the threat of a Federal Reserve or European Central Bank (ECB) hawkish policy mistake has returned to the top of the list of biggest tail risks to the market as trade war concerns eased.