Although their net overweight positions on global emerging markets reached a 17-month high, global fund managers turned less enthusiastic towards Indian equities, shows a monthly global fund managers’ survey by Bank of America Merrill Lynch (BofA ML).
For August, they maintained about 30% underweight on India compared to 45% overweight in July. They also increased their underweight on EM countries like Thailand and Brazil, while their sentiment towards China, South Africa, Russia and Indonesia saw an improvement.
Despite a heavy 17% overweight on EM equities, global fund managers' positioning on the region is still a touch below long-term average “... suggesting GEM equities are not yet a crowded trade”, said the study.
Amid rising geopolitical tensions and concerns around US Fed's liquidity tapering, cash levels among global investors spiked to their highest in nearly two years, shows the survey.
It noted that cash levels spiked from 4.5% to 5.1%, the highest since June 2012 and well above a contrarian ‘buy’ signal trigger of 4.5%. As risk aversion among investors went up, a record 61% said US dollar is undervalued and 81% of the polled investors expected the greenback to rally further.
According to 86% of the polled investors, geopolitics is the greatest risk to financial stability. These fears, followed by Fed rate expectations, were key catalysts for higher cash levels.
A net 78% of investors — the highest reading in more than three years — now anticipate higher short-term rates in coming months. “... specifically, almost two in three investors now think the Fed will raise interest rates by 2Q 2015,” said the study.