Global Investing

Emerging Markets: the love story

It is Valentine’s day and emerging markets are certainly feeling the love. Bank of America/Merrill Lynch‘s monthly investor survey shows a ‘stunning’ rise in allocations to emerging markets in February. Forty-four percent of  asset allocators are now overweight emerging market equities this month, up from 20 percent in January — the second biggest monthly jump in the past 12 years. Emerging markets are once again investors’ favourite asset class.

Looking ahead, 36 percent of respondents said they would like to overweight emerging markets more than any other region, with investors saying they would underweight all other regions, including the United States. Meanwhile investor faith in China has rebounded  with only 2 percent of investors believing the Chinese economy will weaken over the next year, down from 23 percent in January. China also regained its crown of most favoured emerging market in February.

Last year, the main EM index plummeted more than 20 percent as emerging assets fell from favour. So what is the reason for this renewed passion in 2012?

Firstly December’s LTRO — a multi-billion euro liquidity arrow from the cupids at the ECB has revived investor appetite for riskier emerging assets, boosting the index to around six-month highs since the start of the January. A second significant factor behind the resurgence in  risk sentiment is that the market is daring once again to hope for an improvement in global growth, says Gary Baker,  BofAML Global Research head of European equities strategy.

The big beneficiaries of all this have been emerging markets.  It’s not just about liquidity. Clearly the actions of the ECB have been vitally important… but what you’ve also seen is an improvement in global growth optimism. If optimism over growth is improving  then there may well be a more fundamental underpinning to the movement.

Investors cutting back on equity buying

This month’s Reuters global asset allocation survey shows that investors have cut back on buying equities after an almost non-stop rally since March.

According to a survey of 49 leading investors in the United States, Britain, continental Europe and Japan, investors now hold an average of 54.9 percent of their portfolios in equities.

This is the lowest level since February and below the long-term average of 59.3 percent.

Equities: risky assets or return assets?

Are equities risky assets, or return assets? Watch Mark Tinker, Fund manager of the AXA Framlington Global Opportunities Fund, who talks about how the market has more room for an upside now that distressed sellers are gone.