Outperformance of emerging markets likely to continue: survey
High cash levels and significantly underweight exposure of fund managers to emerging markets indicates outperformance may continue
The October survey of global fund managers by Bank of America-Merrill Lynch shows that there is now some cautious optimism towards emerging markets. In the past month, the net underweight position of fund managers on emerging markets has reduced somewhat. This contrarian trade was much awaited as the emerging market underweights had fallen dramatically and a rebound was in order. The survey says that, given high cash levels and given that fund managers’ exposure to emerging markets is significantly underweight, “EM quiet outperformance can continue". This trend is all the more likely given the recent deadlock in the US government and the postponement of the tapering of bond purchases by the US Federal Reserve.
India remains one of the most underweight markets among emerging market funds, while it is the most underweight among Asia Pacific investors. From a contrarian point of view, that would indicate a rebound.
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