Funds exit Asia

Global fund managers are forsaking Asia for Russia and Brazil, a new Merrill Lynch survey has found.

Managers have slashed their weightings to India by 63 per cent and by a similar figure for China since October last year.

By comparison, managers are overweight in Russia stocks by more than 70 per cent and 50 per cent overweight in Brazilian equities.

The Merrill Lynch Survey of Fund Managers has found global managers have taken their most negative stance towards equities in a decade.

The managers were 27 per cent underweight in global equities in the first six months of this year, with 42 per cent of managers overweight in cash.

The report found managers are scared of stagflation happening again as interest rates rise and the global economy slows.

This has led to the move away from equities and bonds to the safe haven of cash.

Just 1 per cent of the 204 fund managers surveyed believe equities are undervalued while 81 per cent believe earnings estimates for stocks are too high.

“The market is waking up to the idea that global interest rates are too low, in fact, they remain below inflation,” said Merrill Lynch chief European equities strategist Karen Olney.

“Negative real rates are hardly an antidote to inflation.

“Merrill Lynch expects a double rate hike from the European Central Bank (ECB) by October and would expect other central banks to follow.”

Currently, Europe is the least favoured investment zone by fund managers, according to the report.

A total of 29 per cent of fund managers said they would remain underweight in Europe during the next 12 months.

To add to the region’s woes, 71 per cent of managers thought the Euro was overvalued and ECB monetary policy too restrictive.

The UK is not spared from the negative perception of Europe, with 38 per cent of managers underweight in UK stocks.

Despite Sterling falling, 56 per cent of managers think the currency is overvalued.

And the favoured stocks globally are gas and oil, with 62 per cent of managers overweight in the sector while the same number are underweight in banks.

“The burning question is when to sell oil companies and move back to banks,” Olney said.

“Fundamentals absolutely support oil over banks.

“The sector has the strongest earnings momentum in Europe and is also among the cheapest.”

Merrill Lynch is forecasting an average price of $US121.50 per barrel in the second half of this year and the price to fall to $US107 per barrel next year.