For the first time this year, global fund managers think that corporate profit growth in emerging markets is going to deteriorate over the next twelve months.
MUMBAI: For the first time this year, global fund managers think that corporate profit growth in emerging markets is going to deteriorate over the next twelve months.
This came from a survey of global fund managers carried out by Merrill Lynch for the month of September 2007.
But offering a seemingly paradoxical view, the survey also finds that there is a very strong buy signal for emerging market equities.
Over one-third of the asset allocators are overweight cash in September, a position exceeded in only three months since 2000. According to the report, such a high level of cash is a contrarian buy signal for global emerging market equities. Further, only 4% of the fund managers think that emerging market equities are overvalued, while around 71% think they are fairly valued.
And moreover, global fund managers’ exposure to Europe and emerging markets has not reduced: “36% are overweight emerging market equities, in line with the 2002-06 average,” says the report, authored by Merrill Lynch equity strategists Michael Hartnett, Bill Kan, Lucila Broide and Michael Penn.
But the outlook for India appears quite bleak. Among all emerging markets, India was among the least favoured, with a net 29% saying they are underweight India. Chile, Poland and Israel were the only other markets out of the 15 for which the survey was conducted, that had a higher proportion of fund managers saying that they are underweight.
Among BRIC (Brazil, Russia, India China) countries too, India can expect the least amount of flows especially after a majority of the fund managers said they prefer India the least over the next twelve months. The net 42% who said they preferred India the least in September shows an increasing resentment towards Indian equity: in August only a net 32% said they preferred India the least.
But the Fed fund rate cut on Tuesday, from 5.25% to 4.75% can be the silver lining. “The Fed cut along with control over inflation and an improved political situation has helped boost market enthusiasm. A look at some of the advance tax figures also suggest that quarterly numbers of corporates are likely to be healthy.
The feel good factor of the Fed verdict will continue for some more time with increasing inflows in India where there are some very good investment opportunities,” said Amar Ambani, vice-president of research at India Infoline.
“The cut is seen to be alleviating the credit problem and also increase liquidity, leading to higher flows in to emerging markets and thus to India,” adds Arvind
Chari, fund manager (fixed income), Quantum Mutual Fund, in an article.
According to the survey, Asia still remains the market of choice for global emerging market investors, as compared to Europe, Middle East and Africa, which is the least preferred, and Latin America, which is preferred by just a handful.
That, and the fact that 100% of the surveyed saying that they prefer global emerging market sectors or stocks exposed to domestic demand, with no one preferring stocks/sectors exposed to overseas demand, can be turn out to be the unheralded heroes. For, most Indian companies are domestic consumption-led.
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