Investors dumped emerging-market equities this month as US stocks continue to find favour, amid slowing economic growth in China and an expected rise in US interest rates.
A net 13% of allocators have moved sharply underweight EM stocks, from a net 1% being overweight in December, according to the Bank of America-Merrill Lynch monthly fund manager survey*. And a net 17% say emerging markets is the area they most want to underweight in the coming year.
Meanwhile, a net 24% of managers are overweight US equities, up from a net 16% last month, though a net 75% say they are overvalued, the highest reading since the question appeared in the poll in 2001.
Amid the aversion to emerging markets, India has been the most popular Asian destination for fund managers this month. It is the most favoured market among both global emerging market (GEM) and Asia-Pacific managers relative to previous allocations.
With questions hanging over China, a net 41% of GEM respondents expect weaker growth in the world's second biggest economy in the coming year. But it is the second most favoured market among both GEM investors relative to historical allocations, after India.
Singapore and Indonesia were the most underweight markets for Asia-Pacific investors, while Russia and Brazil were the most unpopular for GEM investors.
Japan remains heavily in favour, but less so, with a net 34% of global investors overweight Japanese equities this month, down from 40% in December.
The global outlook also deteriorated last month. A net 51% of fund managers believe the world economy will improve this year, down from a net 60% last month.
However, Europe may be set to rebound. With deflation fears stalking the eurozone, 72% of investors predicted that the European Central Bank will start quantitative easing in the first quarter.
“Amid expectations of ECB stimulus, consensus is convinced that Europe is the region to overweight in the coming year,” said Manish Kabra, a European equity and quantitative strategist at BoA-Merrill.
*A total of 177 fund managers, managing $514 billion, participated in the global survey. A total of 97 fund managers, managing $231 billion, participated in the regional surveys.