| LONDON, June 18
LONDON, June 18 Emerging markets are suffering a
sharp pullback by investors fearful of a shock from China just
as confidence in the world economy, and the euro zone in
particular, rises, according to a survey of fund managers.
The monthly poll from Bank of America Merrill Lynch,
published on Tuesday, showed that allocations to global emerging
market equities in June hit their lowest level since December
2008, with a net nine percent of respondents now underweight.
A net 48 percent of fund managers reported an overweight
position in equities overall, up from 41 percent in May and back
above the 47 percent level seen in April.
The survey, which polled 248 managers with $708 billion in
assets, found that a net 25 percent placed emerging markets as
the region they would most like to underweight in the coming 12
months, the lowest ever reading.
Last week, emerging markets stocks posted their fifth
straight week of losses.
The fears over China come after a Reuters poll on Tuesday
signalled more optimism among equity analysts, and Michael
Hartnett, chief investment strategist at BofA Merrill Lynch
Global Research, reckoned the survey response looked overdone.
"The lows in emerging market equity and commodity
allocations suggest the market has over-positioned itself for a
shock from China," he said. China was considered the greatest
tail risk among those polled, followed by a potential failure of
stimulus measures in Japan.
Allocations to commodities reached a record low with a net
32 percent of those surveyed holding underweight positions.
Manish Kabra, equity strategist at Bank of America Merrill
Lynch, outlined the implications of what looks like a
"It's the sentiment that is running out of anything that is
linked to emerging market or the commodity cycle. If China
actually surprises on the upside in the coming months there is a
big bounce ready to come," Kabra said.
The emerging markets gloom stood in contrast to signs of
renewed confidence in prospects for the euro zone, where a net
six percent of those polled are now overweight equities. That
represents a 14 point swing from the underweight position from
The numbers are most stark among local players, with a net
45 percent of European respondents expecting the economy to
strengthen in the coming year, close to double last month's
"First of all, expectations have been very low ... Anything
that is based on mean reversion... cannot be bad forever, then
Europe is the place that is more likely to show upside
surprises," said Kabra.
(Additional reporting by Franceso Canepa; editing by Mark