Allocations by global fund managers to emerging markets have improved markedly in recent months, as the chart shows. The data is taken from the Bank of America Merrill Lynch’s monthly survey of global fund managers.
The improvement in allocations to emerging markets shown by the chart is mirrored in the performance of the MSCI Emerging Markets Index, which is up 4.6% this year (till 12 April). Nevertheless, April 2016 is the 16th straight month of fund managers being net underweight emerging market equities and the current allocation is still 1.2 standard deviations below the long-term average.
Additionally, cash levels with fund managers are a high 5.4%, which normally means there’s a lot of juice left for a rally. But Bank of America Merrill Lynch says there are mixed messages from the survey. Its conclusion: “Cash level superficially bullish but rare for cash to jump so much during risk rally (only happened 9 times since Jan ’98); valuation of bonds & equities 7th highest reading in 13 years=best explanation; cash protects downside, valuation constrains upside, trading range in risk assets set to continue.”
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