BackThe rotation to emerging market and Indian stocks
According to a Bank of America Merrill Lynch survey, investor sentiment towards India has made a U-turn
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Why did the MSCI Emerging Markets Index rise by almost 8% in one month when the MSCI World Index has barely budged? Investors’ positions shifted from a net 31% underweight on emerging markets in March to a 13% net underweight in April, according to a Bank of America Merrill Lynch survey of global fund managers. The survey also showed that investor sentiment towards India made a U-turn, going from a net 13% underweight to a net 44% overweight, which accounts for the surge in the local equity market. “India and Indonesia are winning The Race to Surplus" and “are being rewarded by investors," the survey said in a reference to the improvement in the current account surplus.
Does the rotation of funds to emerging markets mean the rally is running out of steam? Not quite, because cash levels with fund managers are still high at 4.6%, although it’s down from 4.8% in March, and the survey points out that despite the big month-on-month improvement, allocations to emerging markets remain 1.8 standard deviations below the 0-year average. But the survey also says stronger Chinese growth expectations are needed to further improve fund allocations to emerging markets. For India, though, the fact that it is by far the biggest net overweight among emerging markets will act as a dampener, although the market will still benefit from any increase in overall allocations to emerging markets.
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