Before you break out the champagne on the news that international investors like the US (or more accurately, hate its stocks less than those of other nations), the article does not address the weighting of equities relative to other asset classes (ie, total allocations could still be down due to shifting more capital to commodities, bonds, or even plain old cash). The relative allocation to the US could be up with the absolute amount invested down.
The article also does not say what proportion of the funds surveyed hedge their currency exposure (certain . Many of these investors presumably do, either on a fund by fund basis, or across all funds (some, of course, take a point of view in their currency overlays). I’ve always wondered how well hedging works for equities in practice, given that the portfolio value changes frequently due to changes in market prices and investor withdrawals/contributions, and that the timing and amount of dividends can change based on trading within the portfolio.
From the Telegraph:
Fund managers across the world are dumping stocks and retreating to cash in a mood of extreme pessimism, fearing that the looming economic crunch is an even greater threat than inflation.
The latest survey of investors by Merrill Lynch shows that an unprecedented 41pc now think that a world recession is either likely or very likely. The majority dismiss hopes of double-digit earnings growth next year as “fantasy”.
“People are a lot more scared about the macro-outlook. The survey has never seen anything like this before since it began a decade ago,” said David Bowers, the organiser of the report.
“Recession risk has taken over from inflation risk. Fund managers believe the global economy is deteriorating so fast that a wage-spiral is never going to happen, at least in developed markets,” he said. The survey is based on 191 funds managing assets worth $610bn (£305bn).
The US is emerging as the one bright spot in the global gloom, despite the credit mayhem. A net 7pc of investors are overweight in US equities, clearly betting that most of the bad news is already in Wall Street prices. The figure was negative in May…..
“The US has now become the country of cheap manufacturing. You’ve got 20pc wage inflation in emerging markets so FDI (foreign direct investment) is flowing back there,” said Karen Olney, Merrill’s chief European equity strategist.
The investor love affair with India, China, and Asian markets over the last nine months has turned sour.
“That trade is off,” said Mrs Olney. A net 75pc are underweight Indian equities as the country’s inflation reaches double digits. Chile (-69), Taiwan (-50), Korea (-50), Malaysia (-44) are not far behind.
Mr Bowers said investors had woken up to the nasty reality that emerging markets have let rip with inflation and will now have to jam on the brakes.
Those with dollar pegs or dirty floats like China have, in effect, been “destabilised” by the US Federal Reserve’s rate cuts….
Russia (+75) remains the darling of the emerging universe, but for how long? Almost two thirds of investors say oil is fundamentally overvalued…..
A net 42pc think the Bank of England has kept interest rates too high given the housing slump and the consumer squeeze…
Europe is not faring much better. Some 96pc think the economy will get worse over the next year, up sharply from the June survey. A majority believe inflation will fall, and a net 24pc say the European Central Bank is engaging in overkill. Not surprisingly, a record 32pc are now underweight eurozone equities…
Japan is sneaking back into favour after years in the wilderness, if only by default. “Japanese banks are the winner from the credit crunch. Japan now has the capacity to be the monopoly supplier of capital to the world once again,” said Merrill Lynch.