Investors more upbeat on China, but underweight Korea

Oct 15, 2009

Cash is no longer king for asset allocators, but investors are mixed on which Asian countries they favour, according to Bank of America Merrill Lynch's monthly fund manager poll.

After three months of growing pessimism about China, confidence has rebounded, but investors have turned underweight South Korea and remain very downbeat on Malaysia. Meanwhile, equities have benefited from a global cut in cash balances, according to Bank of America Merrill Lynch's October fund manager survey, published yesterday.

Globally, half of respondents think China's economy will strengthen in the next 12 months, up from 35% in September. This was reflected by 10% of global emerging-market (GEM) investors being overweight China this month, compared to 10% being underweight in September. However, 10% of Asian investors are overweight the country now, compared to around 25% in September.

Asian and GEM investors also had very different views on other Asian markets. Around three-quarters of GEM investors were underweight on Malaysia -- a record level for the country -- up from around 65% in September. Yet Asian investors took another view, becoming less pessimistic, with 6% underweight this month, down from 22% underweight in September.

Meanwhile, GEM investors remained underweight India on a net basis, while Asian investors went from being slightly underweight to being overweight the country.

However, both groups were similarly downbeat on South Korea. A net 8% of GEM investors were underweight the country, compared to around 10% being overweight last month. Asian investors have turned a net 6% underweight, having been 13% overweight in September.

The survey also shows that, globally, asset allocators are shifting out of cash and into equities, as risk appetite grows. Their cash positions are at their lowest level since January 2004. A net 7% of respondents are underweight cash in October, compared to 10% overweight a month earlier. A net 38% of panelists are overweight equities, up from 27% in September.

As for currencies, continuing weakness in the dollar has resulted in a growing number of global respondents who believe the dollar is undervalued. A net 20% of panelists regard the currency as undervalued, compared to 1% a month earlier. Japan's economic outlook is marked by a growing number of asset managers who view the yen as overvalued. A net 34% of respondents believe it is overvalued, compared to just 21% last month.

A total of 229 fund managers, managing a total of $616 billion, participated in the global survey from 2-8 October. A total of 195 managers, managing $384 billion, took part in the regional surveys.