Global meltdown worries fund managers, but bet on India & China

Written by Markets Bureau | Mumbai, Jun 23 | Updated: Jun 25 2008, 03:31am hrs
The after-effects of the global meltdown and the slowing down of the economic growth have got fund managers bothered. Many of them have seriously started to re-work their allocations. According to a Merrill Lynch fund manager survey, nearly 61% are bearish on global growth. They also seem have taken a bearish stance on China and India.

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.