The survey suggests that the global emerging market (GEM) profit expectations are at an all time low. Overall, the sentiment is that GEM markets, especially in Asia are overvalued and the fact that there is waning domestic demand that increases the risk in these markets.
Russia seems to have gained all the attention here. Of the fund managers surveyed, around 84% were overweight in their asset allocation to the Russian market. This is an all time high for Russia. At the same time, the percentage of fund managers (net) having a bearish view on India has shot up to 63%, an all time high.
Rising inflation, diminishing earnings growth and political uncertainty have contributed to the downgrade. China on the other hand, has 70% of the fund managers taking a bearish stancethe biggest in the emerging markets.
Amongst the sectors, the tech sector and the energy sector seem to have been fancied by fund managers, but not in the Asian region. The consumer sector is preferred in the Asian region. The financial services sector, due to the ongoing crisis, also has been getting a poor rating.
Untill a few months ago, the financial services sector was favoured by fund managers and had attracted an overweight allocation. Fund managers seem to believe that the markets, especially Asian, would correct further and valuations become attractive. This can be seen in the increasing cash allocations. Overall, fund managers cash levels jump from 4.1% in May 2008 to 4.6% in June.
And at a time when oil prices are rising fund managers there are more fund managers who believe that there will not be a surge in inflation. Around 33% of the fund managers reckon that there actually could be a surge.