Fund managers slash allocation to EM stocks
The Bank of America Merrill Lynch survey of global fund managers for November 2016 shows that allocation to emerging market (EM) stocks has fallen from a net 31% overweight last month to a mere 4% net overweight. This is the biggest month-on-month fall since February 2011. Fund managers also believe that the biggest tail risk for markets is a bond crash, which would spike yields and that “crowded longs (Minimum Volatility, US/EU credit, long EM debt) remain vulnerable to further jump in yields”. How long can this trend continue? The fund manager survey says, “Majority of investors say cyclical rotation should continue well into 2017.”
Steady passenger revenues help railways
Indian Railways, whose revenues are under pressure due to weak trends in goods transport, registered revenue growth for the first time this fiscal year. Revenues increased 0.8% in October, thanks to a steady rise in passenger revenues. The national carrier still generates most of its revenues from the goods business and cumulative revenue growth remains negative—down 3.79% from a year ago. But if the growth in passenger revenues picks up, even if some of it is artificial, boosted by the rush to buy tickets in cash post-demonetization, it can shore up revenues in the current fiscal year.
Challenges to revision in negative outlook for steel
Results of steel firms in the September quarter look better. But their leverage remains high and there are risks to an improvement in their credit metrics from weak domestic demand-supply balance, higher input costs and premature lifting of regulatory protection, according to Fitch Ratings. The continuation of the minimum import price regime, set to end on 4 December, is critical to support the industry, says Fitch. In addition, domestic demand may be held back by weak private sector investments and if supply overhang continues. The rising costs of coking coal is another risk on the horizon.