Photo: Pradeep Gaur/Mint
Photo: Pradeep Gaur/Mint

Fund manager allocations to emerging markets at 22-month high

Brexit changed asset allocations dramatically away from euro zone stocks to US and emerging market stocks

Despite the sharp rebound from the Brexit lows, global fund managers are wary of deploying their cash in the markets. The July Bank of America Merrill Lynch survey of global fund managers, done between 8 and 14 July, shows that cash holdings have risen to 5.8%, the highest level since November 2001. What’s more, a record proportion of investors have hedged against a sharp fall in the equity markets in the next three months.

What’s moving stocks up then? Two out of every three investors expect additional monetary easing from the Bank of Japan and, more interestingly, 39% of fund managers expect a major central bank to announce a policy of “helicopter money" over the next 12 months. What Brexit did was change asset allocations dramatically away from euro zone stocks to US and emerging market stocks.

Is the rally in emerging market stocks likely to continue? To the question ‘Over the next twelve months, which region would you most like to overweight/underweight?’ put to the fund managers, the answer was: long emerging markets/short UK.

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